Professional Documents
Culture Documents
February 2016
Leadership
Client Relationships
Human Capital Alignment
Service Execution
Finance and Operations
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2016 Service Performance Insight, Liberty Township, Ohio
Table of Contents
Tenrox by Upland Helping Organizations Create Success in the Service Industry .......................... xi
1.
Foreword .......................................................................................................................... 1
It starts with the benchmark ............................................................................................................... 1
2015 Wrap-up ..................................................................................................................................... 3
Look Forward to 2016 ......................................................................................................................... 7
2.
3.
4.
Best-of-the-Best............................................................................................................. 31
Introducing the 2016 Best-of-the-Best Service Organizations.......................................................... 31
Best-of-the-Best Demographics ........................................................................................................ 41
Pillar Performance............................................................................................................................. 42
The Best-of-the-Best PSOs Use and Integrate PS Applications ......................................................... 48
Best-of-the-Best Conclusions ............................................................................................................ 49
5.
6.
7.
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9.
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Figures
Figure 1: Annual PS Revenue Growth vs. Headcount Growth ..................................................................... 2
Figure 2: New Client Penetration ................................................................................................................. 3
Figure 3: Bid-to-win Ratio ............................................................................................................................ 4
Figure 4: Employee Attrition ........................................................................................................................ 4
Figure 5: Annual Profit (EBITDA) .................................................................................................................. 5
Figure 6: Growth vs. Annual Profit for Selected Markets ............................................................................ 5
Figure 7: Integrated Information Drives Performance Higher! ................................................................... 6
Figure 8: Service Performance Pillars ........................................................................................................ 9
Figure 9: Services Maturity Model Levels ............................................................................................... 10
Figure 10: Service Performance Pillar Maturity ...................................................................................... 12
Figure 11: Professional Services Maturity Progression .......................................................................... 14
Figure 12: PS Performance Pillars Core KPIs ........................................................................................... 15
Figure 13: Vertical Market Distribution ..................................................................................................... 21
Figure 14: Independent vs. Embedded Survey Orgs Surveyed (2007 2015) ........................................... 24
Figure 15: Organization Size....................................................................................................................... 25
Figure 16: Headquarters Location Region ............................................................................................... 26
Figure 17: Total Company Revenue ........................................................................................................... 26
Figure 18: Total Professional Services Revenue......................................................................................... 27
Figure 19: Year-over-Year Change in PS Revenue ...................................................................................... 27
Figure 20: Year-over-Year Change in PS Headcount .................................................................................. 28
Figure 21: Percentage of Employees Billable/Chargeable ......................................................................... 28
Figure 22: Percentage of PS Rev. Delivered by 3rd-parties ....................................................................... 29
Figure 23: Mergers & Acquisitions over the Past Three Years................................................................... 30
Figure 24: Core Professional Services Business Applications..................................................................... 51
Figure 25: Commercial Solution Adoption ................................................................................................. 53
Figure 26: Financial Management Solution Used ...................................................................................... 59
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Figure 60: Revenue per Billable Consultant Five-year Trend ................................................................... 175
Figure 61: Revenue per Employee Five-year Trend ................................................................................. 176
Figure 62: Project Margin Five-year Trend .............................................................................................. 178
Figure 63: Project Margin......................................................................................................................... 178
Figure 64: Quarterly Non-Billable Expense per Employee ....................................................................... 185
Figure 65: Professional Services Maturity Model Levels....................................................................... 193
Figure 66: Normalized Finance & Operations Pillar Scores...................................................................... 196
Figure 67: Increase performance by focusing on low-performing KPIs ................................................... 196
Figure 68: Key Performance Indicators (KPIs) are Correlated ................................................................. 200
Tables
Table 1: Five-year PS Key Performance Metrics .......................................................................................... 1
Table 2: Maturity Matters! .......................................................................................................................... 8
Table 3: Performance Pillars Mapped Against Service .............................................................................. 12
Table 4: Service Pillar Importance by Organizational Maturity Level ........................................................ 15
Table 5: Vertical PS Markets the North American Industry Classification System ................................ 18
Table 6: Worldwide IT Spending by Category (2014 to 2019) in Constant Currency ................................ 19
Table 7: Number of Participating Firms by Vertical Market (2007 through 2015) .................................... 21
Table 8: Demographics by Vertical Market ................................................................................................ 22
Table 9: Demographics by Vertical Market ................................................................................................ 23
Table 10: Demographics by Organization Type and Geographic Region ................................................... 23
Table 11: Demographics by Organization Size ........................................................................................... 24
Table 12: 2016 Best-of-the-Best Performance Advantage ........................................................................ 31
Table 13: Best-of-the-Best Comparison Demographics .......................................................................... 41
Table 14: Best-of-the-Best Comparison Leadership Pillar (1 to 5 Scale)................................................. 43
Table 15: Best-of-the-Best Comparison Client Relationships Pillar ........................................................ 44
Table 16: Best-of-the-Best Comparison Human Capital Alignment Pillar............................................... 45
Table 17: Best-of-the-Best Comparison Service Execution Pillar ............................................................ 46
Table 18: Best-of-the-Best Comparison Finance and Operations Pillar .................................................. 47
Table 19: Best-of-the-Best Business App. Adoption, Integration, Satisfaction ......................................... 48
Table 20: PSO Departments and Information Needs ................................................................................. 52
Table 21: Commercial Solution Adoption .................................................................................................. 53
Table 22: Business Application Use by Organization Type and Geographic Region .................................. 54
Table 23: Business Application Use by Organization Size .......................................................................... 55
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Table 90: Workforce Age and Gender by Vertical Service Market .......................................................... 127
Table 91: Impact Annual Employee Attrition Voluntary .................................................................... 127
Table 92: Impact Annual Employee Attrition Involuntary.................................................................. 128
Table 93: Impact Recommend to Family and Friends ........................................................................... 130
Table 94: Impact Management-to-Employee Ratio .............................................................................. 130
Table 95: Impact Time to Recruit and Hire for Standard Positions ...................................................... 131
Table 96: Impact Time to Become Productive ..................................................................................... 132
Table 97: Impact Guaranteed Training................................................................................................. 132
Table 98: Impact Well-understood Career Path ................................................................................... 133
Table 99: Impact Billable Utilization...................................................................................................... 134
Table 100: Target Billable Hours and Rates Comparison 2011-2015 All PS Markets and Geographies .. 135
Table 101: Target Billable Hours by Geography....................................................................................... 136
Table 102: Annual Hour Comparison by Organization Type .................................................................... 137
Table 103: Annual Hour Comparison by Region ...................................................................................... 137
Table 104: Annual Hour Comparison by Organization Size (< 100 employees)....................................... 138
Table 105: Annual Hour Comparison by Organization Size (> 100 employees)....................................... 138
Table 106: Annual Hour Comparison by Embedded Service Organization Type ..................................... 139
Table 107: Annual Hour Comparison by PS Market (IT & Management Consulting, Staffing) ................ 139
Table 108: Annual Hour Comparison by PS Market (Advertising, Arch./Engr., Other PS) ....................... 140
Table 109: Annual Hour Comparison by PS Market ................................................................................. 140
Table 110: Workforce Location by Organization Type and Geographic Region ...................................... 141
Table 111: Workforce Location by Organization Size .............................................................................. 141
Table 112: Workforce Location by Service Market Vertical .................................................................... 142
Table 113: Workforce Location by Service Market Vertical .................................................................... 142
Table 114: Service Execution Performance Pillar Mapped Against Service Maturity.............................. 143
Table 115: The Resource Management Maturity Model ......................................................................... 146
Table 116: Impact Resource Management Strategy ............................................................................. 147
Table 117: PSA offers significant benefits ................................................................................................ 151
Table 118: Service Execution Pillar 5-year trend ..................................................................................... 152
Table 119: Service Execution KPIs by Organization Type and Geographic Region .................................. 153
Table 120: Service Execution KPIs by Organization Size .......................................................................... 154
Table 121: Service Execution KPIs by Vertical Service Market................................................................. 155
Table 122: Service Execution KPIs by Vertical Service Market................................................................. 156
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Table 123: Impact No. of Concurrent Projects Managed by Project Mgr. ............................................ 157
Table 124: Impact Project Team Size (people) ...................................................................................... 157
Table 125: Impact Project Duration ...................................................................................................... 158
Table 126: Impact On-time Delivery ..................................................................................................... 159
Table 127: Impact Project Cancellation ................................................................................................ 160
Table 128: Impact Average Project Overrun ......................................................................................... 161
Table 129: Impact Standardized Delivery Methodology Use ................................................................ 161
Table 130: Impact Resource Management Effectiveness ..................................................................... 162
Table 131: Impact Effectiveness of estimating processes and reviews ................................................ 162
Table 132: Impact Effectiveness of change control processes ............................................................. 163
Table 133: Impact Effectiveness of Project Quality Processes............................................................. 164
Table 134: Impact Effectiveness of Knowledge Management processes ............................................. 164
Table 135: Finance and Operations Performance Pillar Maturity ........................................................... 165
Table 136: Finance and Operations Pillar 5-year trend ........................................................................... 166
Table 137: Planning and Budgeting Maturity Model ............................................................................ 168
Table 138: Finance and Operations KPIs by Organization Type and Geographic Region ........................ 169
Table 139: Finance and Operations KPIs by Organization Size ................................................................ 170
Table 140: Finance and Operations KPIs by Vertical Service Market ...................................................... 171
Table 141: Finance and Operations KPIs by Vertical Service Market ...................................................... 172
Table 142: Bill Rate Summary All PS Markets and Geographies ........................................................... 173
Table 143: Steps Taken to Improve Profitability Comparison: 2014-2015 ............................................. 174
Table 144: Published Bill Rate Comparisons: 2008 to 2015 .................................................................... 174
Table 145: Impact Revenue per Billable Consultant ............................................................................. 175
Table 146: Impact Annual Revenue per Employee ............................................................................... 176
Table 147: Impact Revenue per Project Comparison............................................................................ 177
Table 148: Impact Project Margin Time and Expense Projects .......................................................... 179
Table 149: Impact Project Margin Fixed Price Projects...................................................................... 179
Table 150: Impact Project Margin Subcontractors/Offshore............................................................. 180
Table 151: Impact Quarterly Revenue Target in Backlog...................................................................... 181
Table 152: Impact Percentage of annual target revenue achieved ...................................................... 181
Table 153: Impact Percentage of Annual Target Margin Achieved ...................................................... 182
Table 154: Impact Revenue Leakage..................................................................................................... 183
Table 155: Invoices Redone due to Errors or Client Rejections ............................................................... 184
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Tenrox by Upland is proud of our long relationship with Service Performance Insight and excited to
sponsor the 2016 PS Maturity Benchmark Report.
This year is important to Tenrox as it is our 21st anniversary of providing software and services to
professional service organizations. As a company that wrote the very first book on this industry back in
2002, PSA: Professional Services Automation: Optimizing Project and Service Oriented
Organizations, we want to acknowledge how much we appreciate and respect this invaluable report.
Filled with relevant data, analysis, and insights into the professional services world, this report helps
vendors and customers alike measure and benchmark their own performance against other leading
service-driven organizations, helping them to move faster and implement best practices for
improvement.
We hope that everyone that reads this report finds it as jam-packed with relevant industry data and
analysis as we do at Tenrox by Upland. For those of you looking to add or replace your current
Professional Service Automation (PSA) software, please consider us as you explore your options. We are
always excited to learn about the challenges facing new prospects and hope to have the opportunity to
discuss what makes us different. Perhaps we can help you be among the next best-of-best in the
industry. We look forward to the opportunity to partner with you.
Sincerely,
Kevin Sequeira
Tenrox General Manager
Upland Software
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www.timesheet.com
www.uplandsoftware.com
info@uplandsoftware.com
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1. Foreword
Service Performance Insight (SPI Research) is proud to introduce the ninth-annual Professional Services
Maturity Benchmark. For a decade we have researched, benchmarked and built a maturity model to:
Help professional services (PS) executives better understand how their organization compares
to others that are both similar in size and scope of work, as well as to the broader professional
services market; and,
Provide an objective, fact-based framework for performance improvements that helps pinpoint
the areas that will provide the greatest impact.
In 2007, SPI Research developed the PS Maturity Model as a strategic planning and management
framework. It is now the industry-leading performance improvement tool used by over 10,000 service
and project-oriented organizations to chart their course to service excellence.
Each year SPI Research collects data on approximately 200 key performance indicators across all aspects
of professional services organizations. Many benchmarks focus solely on financial metrics, but do not
delve deeper into the root causes impacting those metrics. SPI Research believes each component of a
professional services organization can both positively and negatively impact performance, cash flow and
ultimately profit. The
Table 1: Five-year PS Key Performance Metrics
purpose of this
benchmark is to provide
Key Performance Indicator (KPI)
2011
2012
2013
2014
2015
a holistic view of all
Annual PS revenue growth
13.7%
11.5%
10.0%
10.0%
10.2%
aspects of PS
Annual PS headcount growth
10.1%
8.9%
7.5%
8.1%
7.8%
performance and how
Percentage of billable personnel
74.2%
75.2%
71.2%
75.1%
70.4%
subtle changes in one
Employee Attrition
7.4%
7.2%
8.3%
8.9%
12.9%
area, for example,
Annual revenue per consultant (k)
$197
$206
$193
$197
$198
revenue growth, impact
Annual revenue per employee (k)
$167
$168
$155
$167
$157
all other areas.
Profit (EBITDA %)
13.5%
16.8%
11.4%
13.2%
15.5%
The PS Maturity
model helps executives
Source: Service Performance Insight, February 2016
compare and analyze
their own performance so they can build consensus around the actions to take, and where to start,
while quantifying the benefits of change. Analyzing the benchmark data by vertical market, geographic
region and organization size gives PS executives an accurate comparison to their peers and the market
at large. Over 2,000 firms have completed SPIs benchmarking surveys over the past nine years.
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2015 Wrap-up
In last years benchmark, we characterized 2014 as a Goldilocks year not too hot, not too cold, just
right. In 2015 the positive trend continued with greater than 10% revenue growth and higher net
profits but cracks in the foundation started to appear. Based on a much larger global sample survey
size, we saw declines in most of the major leading indicators revenue from new clients, size of the
sales pipeline, backlog, bid-to-win ratios and significantly higher attrition. PSOs have increased the mix
of non-billable to billable headcount, perhaps adding in unaffordable overhead. By geography, the
Americas outperformed all other regions but with a big stock market correction and a major presidential
election, 2016 growth could be tepid. The PS market in Asia Pacific continues to expand but this region
is starting to feel the effects of a growing talent shortage accompanied by a slowdown in Chinas
voracious growth. EMEA reported the worst performance, plagued by Eurozone uncertainty, refugees
and terrorism, it was a relatively tough year across all European markets including PS. 2016 appears to
be fraught with growing geopolitical and socioeconomic issues which will slow PS growth, however, the
sector as a whole will continue to outperform most industries. Fasten your seat belts, lock your doors
and double-down scrutiny of sales forecasts and discretionary spending. With these precautions, your
PS business should continue to thrive.
Where did the new clients go?
A key indicator of the strength and vitality of the professional services market is the percentage of
revenue from new clients. Unfortunately, new client revenue has declined to the lowest level we have
seen in the past nine years. Without an injection of new client revenue, PS growth is limited to mining
the installed base. Overtime, the potential at even the largest accounts diminishes. Without new
market growth, firms and consultant skills languish while existing clients may become complacent. The
percentage of revenue
Figure 2: New Client Penetration
from new clients is a very
important forward-looking
measurement. In 2016 as
market uncertainty
increases, PS organizations
should carefully watch this
metric. PSOs should act
now to expand their
markets, clients and service
portfolio to preempt
revenue erosion.
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Voluntary: 7.8%
Involuntary: 5.1%
It is likely answers for
previous years were only for
voluntary attrition.
Regardless, we know that
attrition is rising
dramatically. This is
undoubtedly one of the
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The beginning of 2016 has been difficult for the economy, increasing the pressure on professional
services organizations to streamline operations and cut cost. While there are always performance
pressures in PSOs, an uncertain economy will make them more acute. In the U.S., still the worlds
largest economy, presidential elections will add to this uncertainty. There is obviously frustration with
government spending and the role of government, but the winner of the 2016 elections will certainly
have an impact on the global economy.
Despite the doom-and-gloom at the start of 2016, the professional services market remains upbeat. The
demand for professional services continues to increase and employees, whose salaries and bill rates
have risen, will no doubt be excited to face the new challenges this year will bring. Achieving financial
targets, talent and sales effectiveness will most likely be at the top of the list of priorities. But dont
forget about efficiently delivering high-quality services, because that is where money is made!
The pace and magnitude of technology change at times seem insurmountable but somehow millions of
consultants find a way to stay abreast of this mounting complexity to make sense of it all for their
clients. New technologies continue to transform the professional services market, and nowhere is this
more evident than in the social, mobile, analytics and collaboration (SMAC) space. These solutions,
many of which are embedded in core business suites such as Enterprise Resource Planning (ERP), Client
Relationship Management (CRM), Professional Services Automation (PSA), and Human Capital
Management (HCM), are becoming increasingly critical to the success and growth in professional
services. Professional Services is an employee driven market, and providing the best tools that provide
the best insight underlies all performance improvements.
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What are the most important focus areas for professional service organizations (PSOs) as their
businesses mature?
What is the optimum level of maturity or control at each phase of an organizations lifecycle?
Can diagnostic tools be built for assessing and determining the health of key business
processes?
Are there key business characteristics and behaviors that spell the difference between success
and failure?
The original concept behind the SPI Researchs PS Maturity Model was to investigate whether
increasing levels of
Table 2: Maturity Matters!
standardization in operating
processes and management
Maturity
Maturity
Maturity
Key Performance Measurement
Level
1-2
Level
3
Level
4-5
controls improve financial
Percentage of respondents
55%
25%
20%
performance. The 2016 PS
Maturity Benchmark
Year-over-year change in PS revenue
2.1%
8.5%
23.5%
demonstrates that increasing
Deal pipeline relative to qtr. bookings
140%
186%
229%
levels of business process
forecast
maturity do indeed result in
Employee billable utilization
66.1%
72.7%
78.0%
significant performance
Projects delivered on-time
69.7%
79.6%
85.0%
improvements (Table 2).
Annual rev. per billable consultant (k)
$144
$231
$251
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Within each of the Service Performance Pillars, SPI Research developed guidelines and key
performance maturity measurements. These guidelines cut across the five service dimensions (pillars)
to illustrate examples of business process maturity. This study measures the correlation between
process maturity, key performance measurements and service performance excellence.
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With core benchmark information gleaned on all primary business functions, SPI Research was able to
construct a Professional Services Maturity Model that determines organizational maturity by pillar
and provides guidance to advance to the next level (Table 3).
Table 3: Performance Pillars Mapped Against Service
Leadership
Level 1
Initiated
Initial strategy is to
support product sales
and provide reference
customers while
providing
workarounds to
complete immature
products. Leaders
are doers.
Level 2
Piloted
PS has become a
profit center but is
subordinate to
product sales.
Strategy is to drive
customer adoption
and references
profitably. Leaders
focus on P&L and
client relationships.
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
PS is important revenue
and margin source but
channel conflict still
exists. Services
differentiate products.
Leadership
development plans are
in place. Leaders have
strong background &
skills in all pillars.
PS is critical to the
company. Service
strategy is clear.
Complimentary goals
and measurements are
in place for all functions.
Leaders have global
vision and continually
focus on renewal &
expansion.
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Level 2
Piloted
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
Client Relationships
Opportunistic. No
defined solution sets
or Go to Market plan.
Focus is on new
customers and
reference building.
Individual heroics, no
consistent sales,
marketing or
partnering plan or
methodology. Ad
hoc, one-off projects.
Start to use
marketing to drive
leads. Multiple sales
models. Start
investing in sales
training, CRM &
sales method-ology.
Start measuring
sales effectiveness &
client satisfaction.
Start developing
partners and partner
programs. Some
level of proposal
reviews and pricing
control.
Executive relationships.
Thought leadership.
Brand building and
awareness. High
customer satisfaction.
Integrated sales,
marketing and partnering
programs. High quality
references.
Hire as needed.
Generalist skills.
Chameleons, Jack of
all Trades. Individual
heroics. May perform
presales as well as
consulting delivery.
Begin forecasting
workload. Start
developing job and
skill descriptions &
compensation plans.
Rudimentary career
paths. Start
measuring employee
Satisfaction
No scheduling.
Reactive. Ad hoc.
Heroic. Scheduling by
spreadsheet. No
consistent project
delivery methods. No
project quality
controls or knowledge
management.
Skeleton
methodology in
place. Centralized
resource mgmt.
Initiating project
mgmt. and technical
skills. Starting to
measure project
satisfaction and
harvest knowledge.
Integrated solutions.
Continual checks and
balances to assure
superior utilization and
bill rates. Complete
visibility to global project
quality. Multi-disciplinary
resource management.
5 to 15% margin. PS
becoming a profit
center but still
immature finance
and operating
processes.
Investment in ERP
and PSA to provide
financial visibility.
May not have realtime visibility or BI.
Standard Library of
Contracts and
Statements of Work.
15 to 25% margin. PS
operates as a tightly
managed P&L.
Standard methods for
resource mgmt., time &
expense mgmt., cost
control & billing. In
depth knowledge of all
costs at the employee,
sub-contractor & project
level. Processes in
place for contract
management, legal and
pricing decisions.
Service Execution
Level 1
Initiated
Human Capital
Alignment
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SPI Research believes wide support for the PS Maturity model is due to its holistic approach to
measuring performance. Maturity is determined through alignment and focus both within and across
functions. For example, although financial measurements are of primary importance they are equally
weighted and correlated with leadership and sales and quality measurements to ensure organizations
improve across all dimensions, not just in terms of financial performance. However, if the organization
is profit-motivated (which most are), increasing maturity levels do show up in significant bottom-line
profit. Figure 11 highlights major key performance measurements by maturity level, and should alone
be an important reason why PS executives should look deeper into using it to increase profits.
Figure 11: Professional Services Maturity Progression
The results and insights gained in the past seven years have confirmed SPI Researchs original hypothesis
that service organizations must develop a balanced and holistic approach to improving all aspects of
their business as they mature. SPI Research has discovered that the emphasis on individual service
pillar performance shifts as organizations mature. Excellence in only one particular service performance
pillar does not create overall organizational success rather it is the appropriate balance and alignment
within and across performance pillars, which ultimately leads to sustainable success.
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Table 4 depicts the relative service performance pillar importance by organizational maturity level.
Many professional service organizations are established without a particular initial focus toward
optimizing performance.
Table 4: Service Pillar Importance by Organizational Maturity Level
Initiated
Piloted
Deploy.
Inst.
Opt.
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3. Survey Demographics
For this benchmark, SPI Research surveyed 549 billable Professional Services Organizations (PSOs) from
September through December, 2015. The following sections outline the key markets which comprise
the global professional services industry and breakdown the 2015 survey demographics in a number of
key areas (market, organization size, and geographic region) to help PS firms compare their individual
results to the benchmark.
SPI Research uses the North American Industry Classification System (NAICS) to analyze the services
market. The primary Professional Services designation is NAICS 54xx which defines PS sub-verticals as
Those in this subsector engage in business processes where human capital is the major input. These
establishments provide the knowledge and skills of their employees, often on an assignment basis,
where an individual or team is responsible for the delivery of high value services to the client. The
individual industries of this subsector are defined on the basis of the particular expertise, training and
credentials of the services provider (Table 5).
Additional industry segments which generate substantial professional service revenue include software
(NAICS 5112); Data Services (NAICS 518) and Employment Services (NAICS 5613). Including these
segments, the US professional service industry generated approximately $2 trillion in revenue and
employed 12.5 million US-based workers. The US market represents roughly 60% of global professional
services revenue which leads to a global revenue estimate of $3.4 trillion, providing employment for
20.8 million professional service workers. These figures exclude revenues and PS employees in
telecommunications, financial services and healthcare services.
According to the 2015 US Census, professional, scientific, and technical services (NAICS 54xx) revenue
was $1.56 trillion, up 4.7 percent from 2014. Across the service industries, the fastest growing segments
in 2015 were employment services (recruiting and staffing) 11.4%; management consulting 11.3% and
accounting 10.4%. Two segments experienced market contraction from 2014 to 2015. Specialized
design service revenue declined -2.3% and architectural, engineering and related services declined -.7%.
Within professional services, the fastest growing and most vibrant segment is software and IT services.
There are more than 100,000 software and IT services companies in the United States, and more than 99
percent are small and medium-sized firms (i.e., under 500 employees). This total includes software
publishers, suppliers of custom computer programming services, computer systems design firms, and
facilities management companies. This segment of the PS industry draws on a highly educated and
skilled US-based workforce of nearly two million people.
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Code
Market
Description
US
Census
2015
Revenue
Employees
(1,000s)
CAGR
20142015
5112
Software
$190.7B
386
3.6%
518
Data
Services
$104.5B
392
5.1%
5411
Legal
$261.0B
1,114
4.8%
5412
Accounting/
Tax Prep/
Bookkeeping
/ Payroll
$163.4B
888
10.4%
5413
Architectural,
Engineering
and Related
Services
$223.5B
1,277
-0.7%
5414
Specialized
Design
Services
$20.98B
111
-2.3%
5415
Computer
Systems
Design
Services
Related
Services
$351.58B
1,442
4.4%
5416
Management
Science and
Technical
Consulting
Services
$207.34B
991
11.3%
5417
Scientific
Research
and
Develop.
Services
$149.09B
620
0.3%
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Code
Market
Description
US
Census
2015
Revenue
Employees
(1,000s)
CAGR
20142015
$112.76B
408
2.1%
5418
Advertising
and Related
Services
5419
Other
Professional,
Scientific,
Technical
Services
$76.2B
573
7.8%
5613
Employment
Services
$324.7B
4,277
11.4%
2015 Total
$2.015
Trillion
12.479
Million
Many of the concepts and uses of professional services described in this report also exist within productdriven organizations. As a result, Service Performance Insight uses the term services-driven
organization, or embedded service organization (ESO) to describe the rapidly expanding market for
service organizations within product companies.
Global IT Spending
According to Gartners 2015 IT Spending report, IT and Telecom services represent almost 70 percent of
all IT spending with global revenues in excess of $2.9 trillion. Although the pace of service revenue
growth has slowed, unlike most other industries, year-over-year IT service revenue has only declined
once in the past ten years (2008-2009).
Table 6: Worldwide IT Spending by Category (2014 to 2019) in Constant Currency
2014
2015
2016
2017
2018
2019
CAGR
2014-2019
$171
$185
$187
$190
$192
$193
2.5%
Software
319
339
360
383
407
434
6.4%
Devices
709
722
724
732
741
750
1.1%
IT Services
970
1,006
1,046
1,089
1,137
1,189
4.2%
1,647
1,662
1,668
1,698
1,723
1,745
1.2%
$3,816
$3,912
$3,984
$4,091
$4,200
$ 4,311
2.7%
Communications Services
All IT
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Architects and Engineers: Architects and engineers 9.1% representing 50 firms with ~ 21,425
architects and engineers;
SaaS PS: Service divisions within software-as-a-service providers 7.8% representing 43 firms
and ~ 25,020 consultants;
Managed Services: Provide hosting and managed and outsourced services 1.4% representing
17 firms with ~7,785 consultants;
Hardware (and Networking) PS: Service divisions within hardware and networking
manufacturers 2.9% representing 16 firms with ~ 23,500 consultants;
Research and development: provide research and development services 2.7% representing 15
firms with ~ 38,660 consultants
Value-Added Resellers: resell hardware, software and provide technology services, training and
support 2.6% representing 14 firms with ~ 9,425 consultants;
Accountancies: Accounting firms 2.4% representing 12 firms with ~ 1,970 accountants and
auditors;
Staffing: Recruiting, provide temporary resources and consultants 1.6% representing 9 firms
and ~ 21,660 consultants.
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Other PS: Research and Development; business optimization, training 2.2% representing 13
firms and ~ 19,000 consultants; Other PS includes other types of PSOs such as legal,
healthcare and organizations that did not squarely fit into other specific professional services
verticals.
Table 7 shows participant demographics for the past eight years. For the past four years, IT
consultancies have been the largest participating market, closely followed by PS within software firms.
Table 7: Number of Participating Firms by Vertical Market (2007 through 2015)
Market
Type
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total
IT Consulting
PSO
13
24
50
67
61
69
115
86
190
675
PS within Software
ESO
34
66
89
57
56
45
45
47
89
528
Management Consulting
PSO
12
22
22
31
34
24
27
68
242
Other PS
PSO
13
30
22
13
31
21
24
13
169
PS within SaaS
ESO
18
19
26
23
16
13
43
158
Architecture/Engineering
PSO
10
50
91
PS within Hard./Network.
ESO
12
10
16
68
Advertising (Marcom)
PSO
10
11
12
49
Accounting
PSO
13
31
ESO
17
17
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Type
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total
PSO
15
15
Value-Added Reseller
ESO
14
14
Staffing
PSO
52
118
225
214
216
234
238
220
549
2,066
Total
Tables 8 and 9 further analyze the survey demographics by vertical market, highlighting the markets
surveyed. According to this years survey, VARs experienced the greatest year over year PS revenue
growth at 16%, closely followed by SaaS PS organizations at 15.8% and IT consultancies at 12.3%.
Overall PS revenue grew at 10.2%, up slightly from last years growth of 10%. Based on completed
surveys from 2,066 PS organizations, PS revenue growth for the past five years has averaged 10.9%.
Over the same five-year period, these firms have increased PS headcount by 8.3%. Across the PS
industry, annual revenue growth is always higher than PS headcount growth which means firms become
more productive as they scale while the overall PS industry continues to ratchet up productivity.
Table 8: Demographics by Vertical Market
Demographic
IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
190
89
68
50
43
17
573
590
255
429
582
458
$151.6
$339.1
$107.8
$101.5
$261.0
$204.8
$72.2
$74.4
$55.8
$92.2
$78.0
$86.7
47.6%
21.9%
51.8%
90.8%
29.9%
42.3%
12.3%
10.5%
9.0%
3.2%
15.8%
10.0%
9.6%
6.8%
5.0%
4.0%
13.1%
6.7%
73.7%
75.5%
69.6%
71.0%
65.6%
57.8%
11.9%
9.2%
11.0%
11.4%
8.5%
5.5%
1.04
1.70
0.73
0.86
1.85
1.26
Hardware and networking represented the largest organizations with PS headcount of 1,469. Accounting
firms reported the smallest average PS headcount at 152 accountants with PS revenues averaging $24M.
Architect and engineering firms reported the highest percentage of total revenue from PS at 90.8%. For
other PS and VARs, professional services are a small component of the business. They reported the
lowest percentage of total revenue from PS at 6.8% and 11% respectively.
SaaS organizations experienced the most mergers and acquisitions (1.85) while staffing firms
experienced the least (0.56). According to Equiteq, (consulting industry merger and acquisition
specialists) the consulting market experienced a strong uptick in merger and acquisition activity with
overall deal volume increasing 13% from 2013 to 2014. 35% of the over 2,000 consulting acquisitions
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Hardware
/Network.
R&D
VAR
Acct.
Advert.
(Marcom)
Staff.
16
15
14
13
12
1,469
2,577
673
152
206
2,407
$974.2
$471.5
$247.1
$97.3
$59.2
$537.5
$208.0
$312.5
$27.3
$24.4
$21.9
$186.4
21.4%
66.3%
11.0%
25.1%
37.0%
34.7%
7.2%
10.2%
16.0%
-0.2%
1.7%
10.3%
6.7%
8.8%
14.4%
0.4%
5.7%
6.4%
58.7%
64.3%
74.2%
57.5%
67.1%
57.8%
14.1%
11.3%
9.8%
6.7%
9.0%
14.7%
1.53
1.77
1.46
1.31
0.71
0.56
Table 10 compares demographic information for embedded (ESO) versus independent PSOs and by
geography. The size of the embedded (ESO) and independents (PSO) is roughly the same although the
survey was dominated by independents (370 out of 549 firms). ESOs experienced higher revenue and
headcount growth. By geography, the Americas experienced the greatest growth followed by APAC.
EMEA had the smallest firms with the lowest revenue and headcount growth. The Asia-Pacific region
showed the highest percentage of billable employees, which means lower management and non-billable
overhead. APAC relied the most heavily on third parties for additional revenue (11.8%).
Table 10: Demographics by Organization Type and Geographic Region
Key Performance Indicator (KPI)
2015
ESO
PSO
Americas
EMEA
APac
549
179
370
371
141
37
637
660
625
666
522
776
$221.2
$358.1
$158.0
$249.5
$163.2
$164.7
$80.9
$85.4
$78.7
$93.6
$49.4
$75.1
10.2%
11.9%
9.5%
11.7%
6.5%
10.1%
7.8%
8.9%
7.3%
9.0%
5.0%
6.8%
70.4%
69.9%
70.7%
70.9%
68.9%
71.2%
10.9%
9.2%
11.7%
10.6%
11.4%
11.8%
1.19
1.66
0.96
1.28
1.08
0.73
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
55
90
147
123
55
79
20
65
200
500
3,618
$47.9
$59.2
$71.5
$173.6
$360.5
$768.3
$2.6
$4.4
$17.2
$45.7
$77.7
$395.3
6.2%
9.7%
11.3%
9.9%
9.0%
13.1%
0.0%
8.5%
8.0%
8.9%
6.8%
11.3%
62.5%
70.4%
73.3%
69.3%
72.1%
71.2%
8.0%
11.7%
9.9%
10.9%
10.4%
14.1%
0.40
0.51
0.69
1.27
2.03
2.73
PSO Type
SPI Research analyzes billable
PSOs in a number of ways with
a focus on two macro segments
independents and embedded
PS organizations:
Figure 14: Independent vs. Embedded Survey Orgs Surveyed (2007 2015)
Independent
Professional Services
Organizations (PSOs):
Independent PSOs sell,
deliver, and invoice for
professional services to
external clients. Clients
hire systems integrators,
Source: Service Performance Insight, February 2016
IT consultancies (SIs) and
Value-Added Resellers (VARs) to implement or integrate technology based on their strategic
competence or specialized industry or product knowledge. Clients hire management
consultancies to provide strategic insight, guidance, facilitation and coaching. Independent PSOs
typically provide expertise, knowledge, skills and business practices that are more specialized than
those found within internal organizations. In this study a majority of the independent PSOs were
IT consultancies, Systems Integrators (SIs) or VARs, with the remainder representing Management
Consultancies (MCs), Accountants, Marketing and Advertising and Architects and Engineers. The
participating PSOs represented a broad spectrum from some of the largest independent service
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Embedded Services Organizations (ESOs): ESOs operate much like PSOs; however, they are
part of a product-driven organization. The majority of ESO participants focus exclusively on their
companys own technology but many of the largest ESOs like IBM and HP services provide global
IT consulting, managed services and outsourcing not associated with their companys products.
For the small to mid-size ESOs, their primary charter is to successfully implement their companys
products. Increasingly the charter of embedded PS has expanded to include client adoption with a
focus on reducing time to value. While they are focused on professional service revenue and
profit, they are often asked to perform non-billable presales, proof of concept and customer
satisfaction services at little to no charge. They enable external clients but must also support
internal sales, support and engineering constituencies. At maturity levels 1 and 2, their primary
focus is on project delivery and building a reference base. For ESOs, lead generation, marketing
and sales are primarily provided by the product sales organization. In this survey a majority of the
ESOs were part of independent software vendors (ISVs) who primarily provide on-premise
software however the percentage of respondents representing SaaS (cloud) providers is rapidly
expanding. Almost all legacy on-premise software providers are moving to the cloud. SPI
Research shows both on-premise and SaaS results.
SPI Research uses this segmentation because independent consultancies must fund sales and marketing
and back-office operations for finance, operations, facilities, IT and recruiting in a way that embedded
organizations generally do not. Independents incur a higher cost of operation than captive (embedded)
organizations do. However, the following chapters will demonstrate independent PSOs generally
outperform their embedded counterparts because their sole focus is on delivering high-quality services
at a profit. Independents generally are focused on client delight and service revenue and profit growth,
versus embedded where successful and profitable projects are often subordinate to customer product
adoption and incremental product sales.
Figure 15: Organization Size
Organization Size
The average size organization in the
Professional Services Maturity Benchmark
has grown, from 211 employees in 2012, to
637 in this years survey. This years survey
is based on firms who employee more than
350,000 consultants worldwide making it
the most comprehensive study of the
Professional Service industry.
Figure 15 highlights survey distribution by
PS headcount. The largest percentage of
firms have between 31 and 100 employees,
which has been the case for several years
now. Embedded services organizations
average 660 PS employees whereas
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Headquarters Location
Service Performance Insight works with
professional service organizations from
around the world, and encourages them to
participate in the benchmark survey. Survey
participation from firms headquartered
outside of North America, (Europe, Middle
East, Africa (EMEA) and Asia Pacific (APac)) is
now over 30%, as the Professional Services
Maturity Benchmark continues to gain
global popularity (Figure 16).
It is important to note that regardless of where the organization has its headquarters, a significant
number of employees may reside outside of
Figure 17: Total Company Revenue
the country. This is especially true for larger
organizations. Therefore, the benchmark truly
reflects global organizations with a worldwide
PS workforce.
Total Company Revenue
In this survey many of the PS organizations are
part of a larger enterprise that also sells a
variety of other products and services. Many of
the independent professional service providers
also sell products or the responding group is an
individual practice within a larger firm. Many
technology service organizations have multiple
lines of business which may include managed
services, outsourcing and staffing. Therefore,
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Figure 23: Mergers & Acquisitions over the Past Three Years
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4. Best-of-the-Best
For the past seven years, Service Performance Insight has
conducted in-depth analysis of the top 5% of PS Maturity
benchmark participants to uncover the reasons for their
superlative performance. The leading (according to the PS
Maturity model) organizations have been named Best-of-theBest after a careful audit of their survey responses and an indepth interview with their lead service executive.
In this year's benchmark, SPI Research names the top 20 firms,
each scoring 20 or above (out of 25) on the PS Maturity Model.
The following sections highlight some of the findings comparing the best preforming organizations to
the rest of the survey participants.
According to Service
Table 12: 2016 Best-of-the-Best Performance Advantage
Performance Insights 2016
Professional Services
Top 20
All
Measurement
Advantage
Maturity Benchmark out of
Firms
Others
549 participating organizations,
EBITDA
20.4%
14.9%
37%
twenty firms (5%) significantly
Size of PS Organization (employees)
776
630
23%
outperformed the benchmark
Year over year revenue growth
20.0%
9.8%
104%
average by excelling in all five
Year over year PS headcount growth
17.2%
7.4%
132%
service performance
Average revenue per project (k)
$339
$219
55%
dimensions Leadership, Client
Relationships, Human Capital
Annual revenue per employee (k)
$242
$153
58%
Alignment, Service Execution
Projects delivered on-time
86.7%
75.6%
15%
and Finance and Operations.
Reference clients
81.0%
69.9%
16%
The Top 20 firms outperformed
Source: Service Performance Insight, February 2016
their peers and the benchmark
average with significantly higher profit and more satisfied clients.
The one word that best describes this years top performers is transparent. Transparent is defined as
visibility in context. A key element of their success is to provide open books and communication so all
levels of the organization are empowered to make proactive, fact-based decisions. Transparency binds
employees to the direction and strategy of the firm, propelling superlative execution. They all have
created a culture of excellence by leading with honest, ethical and open communication and metrics.
Integrated business applications support high levels of employee and revenue growth.
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Alternative
Alternative brings the best of the cloud to manufacturers through services and solutions designed to
make technology faster, smarter, and easier to use. Alternative partners with leading cloud technology
providers including Salesforce and NetSuite to build and deliver solutions that meet manufacturers'
needs.
"Alternative will always have service at the heart of everything we
do. Alternative started as a pure services company focused on enhancing
and extending the use of ERP and CRM for our customers. As we all know,
companies typically only implement 40 to 50% of the functionality
available to them, and so our goal was--and is--to help customers realize
greater ROI and extend the functionality and usability of their
technology. We are thrilled to have been recognized as one of the Bestof-the-Best Professional Services organizations, we think it is a real
testimony to our singular focus on helping our clients succeed."
Vivian Keena, Founder and CEO, Alternative
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Best-of-the-Best Demographics
the-Best
we have seen for the past seven
Number of firms
20
529
years, Best-of-the-Best
Size of PS organization (employees)
776
630
23%
organizations tend to be more
Annual company revenue (mm)
$206.5
$221.9
-7%
specialized than the average firm
in the benchmark. This years top
Total professional services revenue (mm)
$67.8
$81.5
-17%
performers are slightly larger than
Year-over-year change in PS revenue
20.0%
9.8%
104%
average firms with 776 PS
Year-over-year change in PS headcount
17.2%
7.4%
132%
employees compared to 630 for
% of employees billable or chargeable
82.1%
69.9%
17%
average firms. Nine are
% of PS revenue delivered by 3rd-parties
10.2%
10.9%
-6%
independent IT consultancies;
M&A over the past three years
1.71
1.16
47%
three are embedded PS
organizations within fast-growing
Source: Service Performance Insight, February 2016
software companies; four are
management consultancies; two are embedded PS organizations within cloud SaaS companies; one is a
Value-Added Reseller and one focuses on research and development. The IT consultancies specialize in
enterprise-class solutions for complex problems in government, healthcare, security and data centers or
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Pillar Performance
The following sections highlight the results of this years Best-of-the-best professional services
organizations (PSOs) and compare their results with the rest of the survey participants.
Leadership
The leading firms are highly specialized. They concentrate on specific high-growth IT segments or
vertical industries. The executives of top-performing firms are seasoned professionals often with a
track record of founding and growing multiple prior consulting organizations.
A recurring theme from this years leaders is their strong sense of community. The leaders of the top
firms are seen as visionaries within the markets they serve, they see their role as one of truly helping
improve the lives of their clients and employees. They select clients and projects because they share the
same values, whether it is a love of transformational change or desire to make a difference through
healthcare and government programs. Their sense of pride and commitment comes through in the
organizations they have developed.
This years leaders discussed the importance of building a unique, employee-centric culture which in
turn becomes a source of competitive differentiation. In todays competitive talent market establishing
a strong reputation as a great place to work and grow is paramount to building brand awareness and
success. While each leader discussed the importance of client success, they also discussed the
importance of creating engaged employees to carry on the culture and position the firm for the future. A
key area of differentiation is that top firms significantly invest in employee development. On average,
they provide 13.5 days of employee training compared to 8.7 days for average firms.
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3.96
3.42
12%
9%
4%
27%
12%
15%
28%
28%
13%
20%
12%
16%
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Best
Rest
20.4%
14.9%
37%
$242
$153
58%
$339
$219
55%
49.6%
32.8%
51%
$279
$194
44%
35.2%
25.6%
37%
43.5%
32.4%
34%
Revenue leakage
2.9%
4.3%
33%
4.17
3.28
27%
50.2%
39.9%
26%
2.3%
3.0%
24%
105.8%
90.7%
17%
102.9%
88.7%
16%
2.6%
2.6%
-1%
53.4
43.3
-23%
$2,625
$1,869
-40%
EBITDA
The Best-of-the-Best make money on every aspect of the business with high subcontractor margins
(35%); high time and materials project margins (49.6%); and high fixed price project margins (46.4%).
The leaders had a significantly larger amount of revenue in backlog (50.2%), which creates greater
financial stability and predictability. They were much more likely to have achieved both their annual
revenue and margin targets which shows they are running a predictable business.
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At what size should a PSO start to evaluate and acquire business applications?
What are the most prevalent business applications and what should our priority be for
application acquisition?
Best
Rest
Delta
100.0%
95.0%
5%
3.95
3.69
7%
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Best-of-the-Best Conclusions
Each year it is inspiring to meet with leaders of the Best-of-the-Best organizations. They are justifiably
proud of the unique Professional Services organizations they have built, but their pride is focused on
their employees and client results, not on themselves. An area that sets the leaders apart is their indepth knowledge of their markets and solutions. They understand and have visibility to all aspects of
the business, despite the fact that many of them run very large organizations.
More than average firms, they are truly passionate about building an exceptional organization, not just
for today, but for decades to come. They are willing to honestly look at themselves and the business
and make changes to ensure they continue to be the premium firm. Their sterling reputation for
delivering high quality results is a key ingredient in their success as most often new business comes from
referrals. One executive spoke of a CIO client that had brought them into four different organizations as
he made career moves.
Many of this years Best-of-the-Best have been winners year-after-year both throughout the great
recession and now again when the consulting market is hot. The independents have aligned themselves
with the latest and greatest technologies. They are constantly reinventing themselves to ensure they
are on the cutting edge of the best technology solutions for their markets. The leaders of the embedded
PSOs have a seat at the executive table PS is seen as a critical element of the business and a major
source of revenue, profit and client product adoption.
Excellence is within the grasp of all PS organizations but it takes hard work, determination and
constant vigilance. Service Performance Insight finds it gratifying that leading organizations rely on the
PS Maturity benchmark to guide their investments and performance. You get what you measure so
reference the superlative results of this years Best-of-the-Best to build your own organizations for the
future!
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Both embedded and independent professional service organizations require similar functionality. The
service industrys use of technology has typically lagged the manufacturing sector but the global size,
complexity and growth of todays service businesses has increased the need for specialized applications
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Core Requirements
Core Applications
Executive &
Administrative
Human
Resources
Legal
Finance &
Accounting
Marketing Automation
Client Relationship Management,
Contract Management
Procurement
Marketing &
Sales
Purchasing
Service Delivery
Information
Technology
Research &
Development
PS Solution Adoption
According to this years survey, reported commercial adoption declined in all categories except ERP,
Human Capital Management and Business Intelligence. As this survey represented a much larger
number of participants (549 compared to 220 last year) it is a more accurate representation of global PS
business application adoption. The abundance of high quality, affordable cloud-based solutions has
enabled greater numbers of PSOs to adopt commercial business solutions yet a surprisingly high number
of firms still rely on antiquated homegrown applications and spreadsheets. SPIs discussions with the
leading application providers shows that cloud is outselling non-cloud by a factor of greater than five-toone. Cloud solutions are especially important in the professional services sector, as todays virtual
consulting organizations may have skilled employees located across the globe, not collocated in physical
offices. The cloud has enabled PS executives and workers at all levels greater mobile access to the
information they need to improve visibility and management control of resources and projects.
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2013
2014
2015
89.5%
92.2%
95.3%
88.5%
87.4%
86.3%
87.9%
88.8%
81.7%
77.6%
81.5%
79.8%
82.0%
84.1%
77.4%
56.5%
63.6%
61.8%
42.6%
46.4%
56.8%
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2015
ESO
PSO
Americas
EMEA
APac
95.3%
96.9%
94.5%
96.9%
91.4%
94.1%
3.70
3.55
3.78
3.70
3.64
3.93
86.3%
96.5%
81.4%
89.2%
79.3%
83.3%
4.01
4.05
3.98
4.04
3.89
4.03
43.2%
50.0%
39.2%
43.9%
40.3%
45.2%
79.8%
82.1%
78.8%
81.1%
76.3%
80.6%
3.79
3.65
3.86
3.76
3.87
3.80
56.4%
54.0%
57.6%
56.8%
54.5%
58.3%
56.8%
66.9%
52.0%
63.1%
41.1%
51.4%
3.70
3.56
3.78
3.72
3.54
3.86
40.7%
39.7%
41.4%
43.1%
31.8%
40.9%
Commercial BI solution
45.4%
50.6%
42.9%
45.9%
46.2%
37.1%
3.70
3.74
3.68
3.70
3.70
3.74
50.8%
60.2%
45.3%
54.9%
40.8%
44.7%
49.2%
51.0%
48.4%
50.0%
45.3%
55.9%
3.67
3.80
3.59
3.74
3.49
3.58
28.1%
26.8%
28.8%
31.1%
24.0%
16.7%
Commercial KM solution
61.8%
70.3%
57.5%
62.4%
55.2%
79.4%
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2015
ESO
PSO
Americas
EMEA
APac
3.69
3.70
3.68
3.70
3.56
3.89
77.4%
88.2%
72.0%
80.8%
66.7%
83.3%
3.88
3.95
3.84
3.90
3.72
4.14
81.7%
73.8%
85.5%
80.1%
83.3%
91.4%
3.70
3.70
3.70
3.73
3.62
3.73
36.4%
41.2%
34.1%
35.3%
37.5%
43.2%
The level of solution adoption is generally higher within embedded PS organizations. Table 22 shows
CRM is significantly more prevalent in embedded service organizations than in independents (PSOs), but
this is to be expected because embedded service organizations (ESOs) tend to be larger and have a
strong product-oriented sales force who are responsible for bringing services into deals. Generally,
these organizations are part of a larger product organization; larger organizations must rely more
heavily on business applications to improve performance.
As one might expect, Table 23 shows higher levels of solution adoption as organizations grow in size.
And for the most part, greater solution integration with core financials also increases as organizations
grow. Even with the proliferation of affordable and easy-to-use cloud solutions, the smallest
organizations will always lag in their adoption rates. SPI Research has seen adoption increase in both
large and small organizations. This figure highlights the importance professional services organizations
have placed on building a strong financial application infrastructure to enhance visibility and
management control resulting in higher productivity and profit.
Table 23: Business Application Use by Organization Size
Key Performance Indicator (KPI)
Under 10
10 - 30
31 - 100
101 - 300
301 - 700
Over 700
66.7%
98.7%
97.0%
100.0%
100.0%
100.0%
4.03
3.57
3.64
3.66
3.46
4.04
70.4%
81.8%
90.3%
84.0%
98.1%
92.3%
3.97
4.08
3.96
4.00
3.94
4.08
CRM is integrated
36.1%
34.5%
36.5%
44.1%
48.0%
61.4%
58.2%
83.9%
82.6%
75.8%
82.7%
88.5%
3.91
3.83
3.85
3.62
3.59
4.00
PSA is integrated
46.6%
50.7%
55.4%
61.0%
55.8%
61.9%
21.2%
40.7%
56.6%
65.0%
67.3%
84.6%
3.73
3.75
3.73
3.62
3.43
3.86
45.5%
24.2%
40.8%
35.0%
44.4%
54.8%
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Under 10
10 - 30
31 - 100
101 - 300
301 - 700
Over 700
22.2%
34.5%
46.4%
48.7%
44.9%
76.9%
3.50
3.74
3.63
3.73
3.60
3.60
BI is integrated
30.8%
31.3%
52.3%
53.4%
53.4%
55.6%
34.0%
40.5%
51.7%
47.7%
56.8%
54.2%
3.76
3.27
3.74
3.74
3.33
3.85
PPM is integrated
15.6%
19.0%
13.9%
37.8%
21.4%
45.5%
Commercial KM solution
45.8%
52.6%
61.1%
58.3%
71.7%
87.0%
3.57
3.75
3.63
3.55
3.63
4.00
52.8%
77.0%
80.0%
75.7%
84.3%
84.6%
3.74
3.75
3.97
3.71
4.05
3.81
83.0%
81.4%
86.9%
80.7%
73.5%
72.0%
3.67
3.77
3.73
3.49
3.56
3.93
26.4%
41.7%
38.0%
28.9%
31.5%
53.6%
Commercial BI solution
Satisfaction with BI solution
Table 24 shows embedded services organizations (Software/SaaS/Hardware PS) have somewhat higher
adoption rates than independents. Generally, these organizations are part of a larger product
organization, larger organizations tend to rely more heavily on business applications to improve
performance. Architects and Engineers reported the lowest level of application usage across all
categories. This is clearly an area for improvement across the construction industries.
Table 24: Business Application Use by Vertical Service Market
Key Performance Indicator (KPI)
IT
Consult
Software
PS
Mgmt.
Consult
Arch./
Engr.
SaaS
Mgd.
Services
97.0%
96.3%
93.3%
86.7%
97.3%
93.3%
100.0%
3.80
3.41
4.00
3.76
3.46
3.85
3.62
86.6%
95.3%
75.8%
69.6%
97.6%
93.8%
100.0%
4.09
3.95
4.14
3.50
4.22
4.07
3.80
CRM is integrated
36.3%
50.6%
30.4%
53.1%
44.7%
50.0%
53.3%
86.5%
84.9%
65.2%
77.1%
85.7%
56.3%
93.3%
3.89
3.59
3.96
3.84
3.58
3.91
3.71
PSA is integrated
57.0%
53.7%
43.2%
72.4%
45.9%
59.1%
57.1%
56.3%
65.4%
42.9%
43.5%
68.3%
73.3%
66.7%
3.79
3.46
3.70
3.90
3.77
3.55
3.36
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IT
Consult
Software
PS
Mgmt.
Consult
Arch./
Engr.
SaaS
Mgd.
Services
Hardware
HCM is integrated
38.9%
35.2%
33.3%
54.8%
40.4%
33.3%
54.5%
Commercial BI solution
47.2%
48.1%
39.7%
38.3%
46.3%
56.3%
60.0%
3.77
3.67
3.39
3.75
3.96
3.80
3.27
BI is integrated
44.3%
52.4%
35.7%
50.0%
64.3%
65.0%
63.6%
48.4%
42.0%
52.6%
45.2%
57.5%
68.8%
66.7%
3.71
3.72
3.50
3.50
4.05
3.90
3.70
PPM is integrated
34.3%
25.0%
14.0%
13.3%
25.0%
35.0%
38.9%
Commercial KM solution
64.2%
76.1%
56.1%
40.0%
70.0%
81.3%
66.7%
3.80
3.57
3.61
3.33
3.78
3.82
3.90
81.0%
91.6%
69.2%
53.2%
90.5%
68.8%
86.7%
3.85
4.04
3.74
4.04
4.00
3.50
3.62
88.7%
71.3%
90.8%
76.6%
76.9%
68.8%
73.3%
3.77
3.70
3.72
3.40
3.75
3.44
3.40
38.1%
37.4%
30.9%
30.0%
41.7%
41.2%
50.0%
Table 25 shows VARs and Marketing and Communication firms rely on ERP and CRM applications with
100% adoption reported. Across the board, application adoption for Accountancies lags other industry
segments. This clearly needs to change as accountancies are experiencing more price pressure and
commoditization than most other market segments. A key impediment is that many accountancies still
rely on complex, homegrown legacy applications. They should strongly consider moving more of their
applications to the new breed of cost-effective cloud-based solutions to modernize their operations.
Table 25: Business Application Use by Vertical Service Market
Key Performance Indicator (KPI)
R&D
VAR
Account
MarCom
Staff
Other PS
93.3%
100.0%
100.0%
100.0%
87.5%
100.0%
3.43
4.14
3.78
3.09
2.80
4.30
66.7%
100.0%
83.3%
100.0%
77.8%
75.0%
3.60
4.36
3.60
3.83
3.43
4.33
CRM is integrated
70.0%
57.1%
55.0%
33.3%
35.7%
50.0%
86.7%
71.4%
50.0%
75.0%
66.7%
70.0%
3.62
4.00
3.33
3.89
3.67
3.50
77.3%
75.0%
50.0%
44.4%
50.0%
83.3%
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R&D
VAR
53.3%
Account
MarCom
64.3%
50.0%
45.5%
55.6%
80.0%
3.88
3.67
3.67
3.83
3.40
3.88
HCM is integrated
78.6%
55.6%
41.7%
25.0%
30.0%
50.0%
Commercial BI solution
35.7%
61.5%
50.0%
20.0%
55.6%
22.2%
3.60
4.00
3.33
4.00
3.33
4.00
BI is integrated
90.0%
77.8%
60.0%
25.0%
58.3%
33.3%
42.9%
38.5%
25.0%
66.7%
55.6%
55.6%
3.50
3.20
3.00
3.50
3.20
3.80
PPM is integrated
70.0%
0.0%
16.7%
20.0%
30.0%
50.0%
Commercial KM solution
71.4%
30.8%
41.7%
50.0%
33.3%
66.7%
3.30
4.25
3.00
4.75
4.33
3.17
78.6%
85.7%
50.0%
80.0%
55.6%
50.0%
3.73
4.00
4.00
3.63
4.20
3.40
71.4%
85.7%
66.7%
90.0%
100.0%
60.0%
3.56
4.00
3.63
4.00
3.56
3.40
36.7%
53.6%
15.4%
29.2%
44.4%
16.7%
Staff
Other PS
Solution Satisfaction
Table 26 shows
application
satisfaction (1: very
dissatisfied to 5:
very satisfied).
Satisfaction with
CRM tops the list
followed by Remote
Service Delivery and
PSA. Satisfaction
levels are the same
for ERP, Social
Media, Human
Capital Management
2012
2013
2014
2015
3.92
4.04
3.93
4.01
4.25
4.05
3.86
3.88
3.84
3.85
4.07
3.79
3.67
3.74
3.68
3.70
Social Media
4.02
3.91
3.89
3.70
3.66
3.55
3.61
3.70
NA
NA
NA
3.67
3.68
3.65
3.76
3.70
3.67
3.56
3.74
3.69
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Figure 26 shows NetSuite is the leading financial solution in this year's benchmark with over 26% of
survey respondents using it. QuickBooks from Intuit, typically number one, declined to the number two
position. QuickBooks market-share is expected to continue to decline as more cost effective low end
2016 Service Performance Insight
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Figure 28 shows NetSuite/OpenAir as the most adopted PSA solution in this year's survey with
approximately 28% (149 firms) of the survey. None is the second-most prevalent solution with 20% (93
firms) of survey respondents not using a PSA. Interestingly, the average size of the organizations who do
not use a PSA is quite large at 329 PS employees. Assistance PSA, a newcomer to this benchmark, came
in third with 10% (51 firms) primarily based in EMEA. Projector came in fourth with 9% (50 firms).
FinancialForce, based on the Salesforce 1 platform and jointly funded by UNIT4 and Salesforce, moved
into fifth place with 6% (33 firms.). Kimble, a PSA provider built on the Salesforce 1 platform, has gained
2016 Service Performance Insight
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Not
Used
424
107
11.2%
6.3%
78%
8.4%
5.4%
57%
72.1%
63.7%
13%
5.94
5.23
14%
71.3%
67.3%
6%
$199
$191
4%
Project Margin
33.4%
32.9%
2%
EBITDA
15.9%
12.8%
25%
KPI
Survey responses
Year-over-year change in PS revenue
Year-over-year change in PS headcount
% of employees billable or chargeable
Concurrent projects managed by PM
Employee billable utilization
Annual revenue per billable consultant (k)
PSA Not
Used
Survey responses
107
96
153
63.7%
70.8%
72.1%
Year-over-year change in PS
headcount
5.4%
8.4%
8.6%
144%
169%
182%
Billable utilization
67.3%
68.7%
72.1%
61.5%
66.7%
67.7%
% of employees billable
Used, Not
Integrated
Used,
Integrated
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HCM
Used
KPI
HCM Not
Used
Survey responses
293
223
885
282
214%
11.4%
8.4%
35%
9.4%
5.6%
67%
70.4%
70.1%
0%
71.3%
69.2%
3%
Management-to-employee ratio
12.54
10.42
20%
$162
$149
9%
17.5%
12.6%
39%
EBITDA
KPI
Used,
Not Int.
Used,
Int.
Survey responses
223
113
71
282
797
1,125
$100
$215
$422
$27.5
$85.5
$171.2
10.42
11.91
13.43
60.1
58.6
53.7
3.87
4.73
5.78
$187
$202
$213
$149
$160
$166
12.6%
15.9%
16.8%
EBITDA
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KPI
BI Not
Used
Survey responses
231
278
822
430
91%
$113.7
$43.5
161%
8.5%
7.2%
17%
178%
166%
7%
EBITDA
17.4%
14.2%
22%
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KPI
KM Not
Used
Survey responses
282
174
836
374
123%
10.8%
9.8%
10%
8.4%
7.7%
8%
10.8%
9.8%
10%
181%
147%
23%
6.18
5.15
20%
5.23
4.14
26%
$204
$186
10%
$161
$151
7%
19.1%
13.9%
38%
EBITDA
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Table 34 compares organizations using knowledge management solutions to those that do not. In this
years survey the organizations using Knowledge Management were twice as large as those not using it.
The table shows, organizations using KM tend to be more efficient in all aspects of their business,
especially in the sale and delivery of services. The organizations also showed slightly improved financial
results compared to those organizations not using KM.
Remote Service Delivery (RSD) and Collaboration Tools
Like Knowledge Management (KM), Remote Service Delivery and collaboration tools have become
increasingly important for virtual project delivery, communication and collaboration. They provide a
platform for consultants and clients to work together, regardless of physical location. Professional
services consultants utilize these technologies to serve several clients daily. In the past consultants
could only serve one client at a time, with expensive and time-consuming travel the norm. Advances
over the past years have added video, recording, editing, polling and white-boarding functionality,
meaning team members can now see each other (if desired) along with sharing information and
computer screens.
Figure 33 shows results similar to past years. WebEx, Citrix and Microsoft lead in adoption. Microsoft,
in particular, has purchased and integrated tools to make Live Meeting more prevalent in professional
services. Given their relatively low cost and ease of deployment, remote service delivery tools should be
on the must have list for PSOs of any size.
Figure 33: Remote Service Delivery and Collaboration Tool Used
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Even the most controlling organizations must recognize and support the trend toward personal devices
and social media if they wish to attract and retain young, connected workers. The downside of the
social media explosion is that it can easily become a time-sink and source of unproductive web-surfing
hours so the trick is to exploit
Figure 35: Success depends on inter-departmental cooperation
collaboration, knowledge-sharing
and crowd-sourcing without lost
productive time. Figure 34
shows LinkedIn continues to be
the dominant social media
platform, with more than 40% of
the organizations surveyed using
it. Yammer at 15% and Chatter
at 9% are second and third.
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2013
2014
2015
34.1%
33.5%
42.3%
61.2%
59.1%
56.4%
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Level 1: Initiated Ad Hoc: Most PSOs begin with manual or spreadsheet-based tools to run the
business. Time and expense capture is manual, sporadic and ad hoc. Billing is performed
manually or through the backend financial application.
Level 2: Piloted Application Specific: As they grow and engage in more structured processes,
organizations deploy task specific applications (time and expense), project management (PM) and
Knowledge Management (KM), Client Relationship Management (CRM), etc. to better manage
work and to create an audit trail, albeit rudimentary, for tracking work. Many of these task
specific applications provide a database to improve reporting.
Level 4: Institutionalized Extended ERP: An increasing number of PSOs at this level of maturity
begin to add various components of ERP applications rather than continually integrate disparate
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Level 5: Optimized Extended ERP and Analytics: Finally, as the PSO has significant integration
in its application infrastructure it turns the solution loose to efficiently surface and report data to
optimally measure and transform the organization. Most, if not all, core applications are
integrated to provide visibility into the work being sold, executed, and closed.
While not every PSO is run with a completely integrated set of business applications, SPI Research has
seen the level of integration increase significantly over the past eight years. This development will
continue regardless of the economy as many PS firms see IT as a way to not only cut costs, but also as a
means to improve operational efficiency and effectiveness.
Figure 38: PS Dashboard
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6. Leadership Pillar
Growth, growth and more growth. Each year SPI
Research finds a direct correlation between growth and
success in Professional services. Given that the PS
industry is built on the application of unique knowledge
and domain expertise it is sometimes hard to understand
why the growth dynamic is so important. But it is. In
the professional services and technology industry,
leading firms create dominant market positions. There is
a compounding effect of how customers make decisions,
the networks and ecosystems that are created, and the
ability to scale as a firm that mean that there is a
significant advantage for the companies that grow the fastest and are able to establish market-leading
positions. The premium PS firms create unique competitive advantage and are able to command
significantly higher bill rates. They become known as the innovators in their markets, industries,
technologies and business processes. They produce tangible results and are able to harvest the
knowledge gained to do an even better job the next time. They build a culture which embodies their
brand and values which further attracts prospective consultants and clients who identify with those
attributes.
Table 36: Leadership Pillar 5-year trend
Key Performance Indicator (KPI)
2011
2012
2013
2014
2015
3.81
N/A
3.85
3.81
3.75
Confidence in PS leadership
4.03
N/A
4.05
4.01
3.86
3.72
N/A
3.75
3.68
3.69
3.60
N/A
3.73
3.62
3.70
3.83
N/A
4.01
3.87
3.82
3.58
N/A
3.74
3.67
3.64
3.79
N/A
3.90
3.76
3.68
Innovation focused
3.65
N/A
3.69
3.66
3.64
But growth comes with a price. The unique knowledge, vision and passion that a consulting leader
brings to founding a hot new firm must be nurtured and continuously kindled within new employees.
The leader must simultaneously learn to let go and grow at the same time. Micro managing does not
work in PS, cultivating a reputation and repeatable skills, competencies and processes does. Most
independent consulting firms can easily grow from 20 to 50 consultants, but after that things get more
interesting. This is when firms must move from heroic to repeatable and founders must move from
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Leadership
Level 2
Piloted
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
Initial strategy is to
support product
sales and provide
reference
customers while
providing
workarounds to
complete immature
products. Leaders
are doers.
PS has become a
profit center but is
subordinate to
product sales.
Strategy is to drive
customer adoption
and references
profitably. Leaders
focus on P&L and
client
relationships.
PS is an important
revenue and margin
source but channel
conflict still exists.
Services differentiate
products. Leadership
development plans are in
place. Leaders have
strong background &
skills in all pillars.
PS is critical to the
company. Service
strategy is clear.
Complimentary goals
and measurements are
in place for all functions.
Leaders have global
vision and continually
focus on renewal &
expansion.
The Entrepreneur.
Leaders are
doers. In small
companies, PS
leaders are
technically
competent and
directly perform
engagement
activities in addition
to recruiting and
ramping new
consultants.
Typically, they
possess stronger
technical than
business or
leadership skills.
The Generalist.
The emerging PS
leader must start
to focus on HR,
Finance and
Operations while
nurturing close
relationships with
clients and
partners. At this
stage, setting
strategic vision
and strategy are
less important than
strong operational
management
skills.
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In the benchmark survey, SPI Research asks a series of questions regarding various aspects of
professional services vision, strategy and leadership including confidence, clarity and alignment.
Strategic decisions set the direction and tone for the PSO and affect all functions because vision and
strategy dictate the goals and objectives for the organization, the types of clients to pursue, the types of
services to offer and the interrelationship between functions.
The leadership questions have evolved into eight core questions that examine how various dimensions
of leadership impact performance. The questions ask, please rate the following aspects of your
organization in terms of how well it operates (1: not well - 5: very well):
1.
2.
3.
4.
5.
6.
7.
8.
The vision, mission and strategy of the PSO is well understood and clearly communicated
Employees have confidence in PS leadership
It is easy to get things done within the PS organization
Goals and measurements are in alignment for the service organization
Employees have confidence in the future of the PS organization
The organization effectively communicates with employees
The organization embraces change, it is nimble and flexible
The organization focuses on innovation and is able to rapidly take advantage of changing market
conditions
SPI Research has created a Leadership Index by ranking the aggregate leadership scores for all eight
questions by survey participant. The minimum score for the leadership index would be eight, if the
survey participant stated 1 - not well for each of the eight questions. The maximum would be 40, if
the participant stated 5 - very well, for each question.
As statisticians, a perfect day is when a key performance measurement clearly correlates with most
measures of performance. Well, the dimensions of leadership are one of those perfect statistics. As the
leadership dimensions improve, so do all major key performance metrics. One might expect
Confidence in Leadership and Confidence in the Future to improve along with clarity of vision and
strategy but the truly remarkable finding around leadership is that all the major operational metrics
revenue per person, utilization, project margin and on-time project completion improve as well. It is
2016 Service Performance Insight
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8 - 25
26 - 30
31 - 35
36 - 40
22.2%
27.8%
35.4%
14.6%
7.2%
8.2%
11.0%
16.3%
65.3%
69.4%
72.2%
75.5%
25.0%
27.1%
29.0%
29.7%
4.31
4.70
5.22
5.69
66.6%
66.8%
72.4%
78.8%
131
121
114
107
3.46
4.06
4.52
4.80
Percentage of respondents
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Survey Results
Organizational Challenges
Each year SPI Research asks participants to rank the key challenges facing them. This year achieving
revenue and margin targets overtook talent management as the number one challenge.
Interestingly, the importance of these challenges has increased year over year indicating growth,
expansion and competitive pressures are more significantly impacting all PS organizations. In 2015 it
was a lot tougher to achieve revenue and margin targets with an influx of new competitors and market
consolidation in legacy markets. Going forward the ever-growing technical talent shortage will continue
to be a top challenge as
attracting the best and brightest Table 39: Year-over-year Change in Top Challenges
talent is becoming more and
Challenge
2013
2014
2015
more difficult without enough
Achieve revenue and margin targets
4.18
4.07
4.19
workers with requisite Science,
Talent management
3.94
4.11
4.18
Technology, Math and
Improve quality and consistency
4.12
3.85
4.13
Engineering (STEM) skills.
Communication across PSO
3.93
3.90
4.12
After two years of torrid growth
Support rapid growth and expansion
4.06
4.01
4.12
and expansion, many firms are
now struggling to keep up with
Improve sales and marketing
4.21
4.10
4.06
the tremendous growth they
Vision and strategy
3.79
3.90
4.03
have experienced. In
Improve / expand portfolio and markets
3.83
3.83
3.92
interviews, several firms
Alignment between functions or groups
3.59
3.45
3.81
reported they plan to slow
Source: Service Performance Insight, February 2016
growth and acquisitions
because their infrastructure and
culture cannot keep up. For the fastest growing firms, 2016 will be an investment year they plan to
update or replace systems; enhance training and invest in their culture to ensure they will be able to
recruit and retain a high quality workforce.
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Survey
ESO
PSO
Americas
EMEA
APac
4.19
4.17
4.19
4.19
4.17
4.25
Talent management
4.18
4.15
4.20
4.21
4.07
4.39
4.13
4.11
4.14
4.10
4.14
4.39
4.12
4.12
4.12
4.12
4.07
4.28
4.12
4.23
4.07
4.17
3.99
4.11
4.06
4.08
4.06
4.07
4.01
4.19
4.03
4.06
4.01
4.04
3.99
4.03
3.92
3.97
3.90
3.91
3.90
4.14
3.81
3.91
3.76
3.84
3.68
3.92
Improvement Priorities
Table 41 compares improvement
priorities for the past three years.
Table 41: Steps Taken to Improve Profitability Comparison
The priority of improvement
Key Performance Indicator (KPI)
2013
2014
2015
initiatives has changed. In 2015
Increases rates
2.83
2.9
3.85
increasing rates and improving hiring
and ramping have eclipsed improving
Improve hiring and ramping
3.51
3.48
3.85
sales effectiveness which has
Improve methods and tools
3.69
3.6
3.85
perennially topped the list. The
Reduce non-billable time
3.34
3.26
3.83
steps firms are taking to overcome
Improve solution portfolio
3.59
3.59
3.78
these challenges include better
Improve sales effectiveness
3.92
3.94
3.78
pricing discipline and management
Improve utilization
3.71
3.85
3.78
oversight for estimates and
proposals. To improve the time it
Improve marketing effectiveness
3.68
3.65
3.52
takes to recruit and on-board new
Source: Service Performance Insight, February 2016
employees, firms are investing in
dedicated recruiters and Human Capital Management systems to automate and streamline the
recruiting process. More and more firms are also investing in on-boarding and mentorship programs to
accelerate the time it takes for new consultants to become productive. This year, almost all top
performing firms discussed their emphasis on service packaging as a catalyst for improving their
repeatability and sales effectiveness.
Table 42 depicts changes in Leadership scores over the past five years. By most measures, leadership
scores have declined since 2013 when the economy stabilized, signaling growing dissatisfaction with
leadership as employees have become over-whelmed by the intensity of the work and pressure to
continually produce more. At the same time, with economic recovery, employees have more job
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2011
2012
2013
2014
2015
Confidence in PS leadership
4.03
N/A
4.05
4.01
3.86
3.83
N/A
4.01
3.87
3.82
3.81
N/A
3.85
3.81
3.75
3.60
N/A
3.73
3.62
3.70
3.72
N/A
3.75
3.68
3.69
3.79
N/A
3.90
3.76
3.68
3.58
N/A
3.74
3.67
3.64
Innovation focused
3.65
N/A
3.69
3.66
3.64
In 2016 PS organizations must be cognizant of diminishing confidence in leadership. The executive team
needs to come together to reestablish the vision, strategies and culture of the firm. Then a succinct set
of improvement priorities must be established and cascaded throughout the organization. More than
ever before, communication, alignment and innovation focus must be accentuated. Todays millennial
generation thrives on feedback, coaching and mentoring.
Well Understood Vision, Mission and Strategy
Clear leadership direction and effective bi-directional communication are critical success factors.
Employees who lack an understanding of the service vision, mission and strategy have no ability to work
toward achieving it whereas
those who comprehend,
Table 43: Impact Well understood vision, mission and strategy
espouse and support the
Well understood
vision of the organization
Survey
Rev.
Emp.
Billable
vision, mission and
EBITDA
%
Growth
Attrition
Util.
will work tirelessly to
strategy
achieve it. In this years
1 Not very well
1.9%
7.0%
22.9%
61.1%
33.3%
survey, clarity of vision,
2
8.4%
6.2%
19.1%
67.2%
15.7%
mission and strategy directly
3
20.5%
6.6%
13.0%
70.1%
13.7%
correlated with revenue
4
51.4%
10.8%
11.9%
70.9%
16.9%
growth, employee attrition
5 Very well
17.9%
15.2%
11.6%
72.7%
13.3%
and billable utilization. But
the correlation with net
Total/Average
100.0%
10.3%
12.9%
70.6%
15.8%
profit is not apparent.
Source: Service Performance Insight, February 2016
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27.9%
8.4%
13.9%
69.1%
12.3%
45.2%
10.9%
11.9%
71.9%
17.6%
5 Very easy
17.6%
13.3%
11.3%
72.5%
14.4%
Total/Average
100.0%
10.3%
12.8%
70.6%
15.4%
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Survey
%
Rev.
Growth
Emp.
Attrition
Billable
Util.
EBITDA
1 Not aligned
1.7%
8.6%
16.2%
66.1%
20.4%
7.9%
10.2%
19.1%
68.6%
12.9%
25.4%
8.6%
13.1%
69.0%
11.6%
49.2%
10.2%
11.8%
71.0%
16.6%
5 Very aligned
15.9%
13.5%
12.1%
73.3%
18.4%
Total/Average
100.0%
10.3%
12.8%
70.6%
15.4%
Alignment or lack of
Source: Service Performance Insight, February 2016
alignment has a significant
impact on bottom-line performance. Lack of alignment emanates from a lack of clarity and conflicting or
too many priorities. It is characterized by low levels of employee engagement and functional silos or
factions. The highest performing service organizations exhibit clarity of purpose and alignment around a
succinct set of core values and initiatives. Effective measurements and compensation reinforce those
values, linking strategy to execution. As shown in Table 46 goals and measurements in alignment had a
profound impact on service execution. Revenue growth, billable utilization and net profit improved with
better alignment.
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Survey
%
Rev.
Growth
Emp.
Attrition
Billable
Util.
EBITDA
2.4%
7.7%
16.5%
64.2%
9.2%
10.2%
6.0%
16.4%
70.5%
16.5%
24.4%
8.6%
13.5%
68.9%
19.4%
43.0%
10.8%
11.8%
70.9%
13.2%
19.9%
13.5%
12.0%
72.9%
16.7%
100.0%
10.2%
12.8%
70.6%
15.6%
Total/Average
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Client Relationships
Level 2
Level 3
Level 4
Level 5
Opportunistic. No
defined solution sets
or go to market plan.
Focus is on new
customers and
reference building.
Individual heroics, no
consistent sales,
marketing or
partnering plan or
methodology. Ad
hoc, one-off projects.
Marketing, inside
sales, solution sales
with defined solution
sets. CRM integrated
with PSA. Deal, pricing
and contract reviews.
Partner plan and
scorecard. Tight
pricing and contract
mgmt. controls. High
levels of customer
satisfaction.
Executive
relationships and
client advisory board.
Thought leadership.
Brand building and
awareness. High
customer satisfaction.
Integrated sales,
marketing and
partnering programs.
High quality
references.
Table 51 highlights the five levels of maturity in the Client Relationships pillar. As sales and service
delivery processes mature, organizations move from selling anything and everything to anyone, to a
more careful and selective approach to client selection; solution creation; deal capture; contract and
pricing management, reference building and partnering.
2016 Service Performance Insight
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2011
2012
2013
2014
2015
5.21
5.19
4.96
4.92
4.95
203%
193%
190%
199%
172%
100
96
95
91
88
N/A
N/A
N/A
7.3%
7.7%
3.07
3.02
2.99
3.00
3.59
3.25
3.20
3.24
3.14
3.57
2.39
2.61
2.70
2.72
3.29
71.4%
75.4%
74.5%
73.7%
70.4%
52.8%
54.7%
51.7%
58.8%
46.7%
45.5%
42.8%
44.0%
36.3%
39.7%
1.3%
1.4%
2.8%
2.1%
6.4%
Other
0.4%
1.1%
1.5%
2.9%
7.2%
PS Sales Maturity
As part of the PS Sales and Marketing Maturity Model, Service Performance Insight focuses on key
success criteria and processes associated with PS sales, marketing and partnering. SPI Research charts
its definitions of sales maturity levels and shows how they progress as the organization enhances the
knowledge and practice of solution selling resulting in superior client value (Table 53).
Client Value
Level 2
Level 3
Level 4
Level 5
Ad Hoc,
Opportunistic,
Heroic
Piloted, Experimental,
Pockets of Excellence
Deployed, Basics in
Place for All Key
Elements
Institutionalized,
in the Company
DNA / Fabric
Visionary, Agile,
Innovative,
Continuous Renewal
and Improvement
Handcrafted
projects, unique,
highly dependent
on individual team
member skills.
Limited replication or
codification of service
solutions. Point product
solutions primarily focused
on rapid implementation.
Starting to focus on
adoption.
Client-centric, high
value services
developed and
packaged.
Demonstrated,
measurable
business value.
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Client Sat
Programs
Partners
Sales Process
Level 2
Level 3
Level 4
Level 5
Opportunistic and
instinctive with ad
hoc service
offerings. No
consistent sales
methodology.
Variation in pricing
methods.
Inconsistent
proposals, quotes,
contracts. Limited
to no investment
in sales training,
methods or tools.
Established thought
leadership and trusted
advisor at highest
levels. Continual
investment in
improving and
expanding service
portfolio as a means of
market expansion.
Effective proposal
center delivers timely,
high-quality estimates,
proposals, contract
and risk reviews.
Ad hoc and
opportunistic
without clearly
defined roles.
Co-development
with partners.
Partners are
integral part of
service packaging
and rollout.
Co-opetition. Partners
contribute to
company's overall
service innovation by
providing SME
feedback and insights.
Ad hoc reference
requests. No
formal program.
Heroic.
Client advisory
board influences
roadmap,
participates in beta
programs.
Table 54 depicts PS sales maturity progression. As organizations enhance their solution selling
capabilities, methods, systems and tools, overall sales effectiveness improves dramatically. These
efforts pay for themselves in higher percentages of sales quota achievement; better sales forecasting
accuracy; improved pricing and estimating accuracy resulting in fewer project overruns; faster sales
cycles due to better deal qualification; larger deals; more PS revenue by account; larger pipelines and
significantly better reference clients.
Table 54: PS Sales Maturity Progression
Initiated
Level 1
Piloted
Level 2
29.4%
24.6%
25.1%
15.0%
5.9%
10.0%
7.5%
10.3%
6.0%
4.6%
7.19
9.60
8.11
9.18
2.86
$1.13
$1.47
$1.86
$1.95
$1.92
63.0%
63.9%
68.1%
72.2%
75.0%
21.2%
19.3%
16.9%
14.3%
7.5%
80.5%
83.5%
82.9%
83.6%
84.2%
109
97
94
89
125
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Deployed
Level 3
Institution.
Level 4
Optimized
Level 5
88
Piloted
Level 2
$77
$111
$124
$121
$171
$148
$142
$157
$345
$271
25.0%
26.3%
25.9%
29.8%
31.4%
4.30
5.05
5.58
5.93
6.20
147%
203%
187%
209%
200%
2.17
3.54
5.11
3.95
4.30
2.76
3.04
3.02
3.18
3.91
71.1%
67.9%
71.6%
76.5%
84.1%
% of "Referenceable" Clients
Deployed
Level 3
Institution.
Level 4
Optimized
Level 5
Source: Service Performance Insight, PS Sales and Marketing Benchmark October 2013
Service sales effectiveness is a subjective question but typically refers to the percentage of sales people
who achieve quota and the probability that the sales organization will achieve its targets. SPI Research
asked respondents to rank the effectiveness of the service sales organization on a scale from 1 to 5 with
5 representing perfection (Table 55). Sales effectiveness has a profound impact on all aspects of PS but
unfortunately more than 10% give sales effectiveness a failing grade of 1 or 2; 32% give sales
effectiveness an OK score of 3; 60% give sales effectiveness high marks. These sales effectiveness
scores are substantially higher than in past surveys. This years rating of sales effectiveness scored 3.57
out of 5 (71%) which is substantially higher than last years score of 3.14 (62.8%) but there is still room
for improvement. With economic recovery, the age old schism between sales and PS delivery is not as
apparent. Another significant sales effectiveness catalyst has been the changing role of PS within
product-driven organizations. No longer the ugly stepchild; PS is now seen as the primary customer
usage and adoption engine, fueling product expansion and incremental product and service sales.
Table 55: Impact Service Sales Effectiveness Impact on Performance
Survey
Annual
Revenue
Growth
BidWin
Ratio
Size of
Sales
Pipeline
Revenue
per
consultant
Revenue
per
employee
Backlog
EBITDA
1 - Low
1.3%
8.9%
4.57
179%
$154
$121
21.4%
12.5%
9.4%
6.6%
4.38
154%
185
147
40.0%
15.9%
32.1%
9.1%
4.75
158%
195
151
40.9%
13.0%
45.2%
10.8%
5.11
179%
201
160
41.2%
16.2%
5 - High
11.9%
13.6%
5.53
191%
205
172
38.7%
23.0%
Total/Avg.
100.0%
4.97
172%
$197
$157
40.4%
15.9%
Sales
Effectiveness
10.1%
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PS Marketing Maturity
The global economy has evolved into a services economy with services like health care, technology and
consulting representing the hottest areas of growth. Marketing services is an important skill, and a
tough one, for businesses to develop. Without a tangible product to show and tell customers about,
service marketers must be adept at pulling together all the pieces of the marketing mix to demonstrate
value for their target clients. Services are inherently intangible, are consumed simultaneously at the
time of their production, and cannot be stored, saved or resold once they have been used. Service
offerings are unique and cannot be exactly repeated even by the same service provider. Service
marketing has become a big business with a focus on establishing the services brand, generating
awareness and leads while providing powerful tools and collateral to support service sales and delivery.
Relationships Are Key
In service marketing, because there is no tangible product, relationships are key both with the services
sales force and clients. Service marketers must listen to and understand the needs of customers and
prospects to identify the compelling reasons they buy and what attributes they most care about to build
differentiation for the firm. The role of service marketing is to identify target markets and clients and to
position the firm and its solutions while supporting the sales force with lead generation and reference
building activities. In many organizations, service marketing is also responsible for developing customer
references, testimonials, case studies and client advisory boards.
Services Marketing versus Service Lifecycle Management
A key finding from this benchmark is most PS organizations are confusing service marketing with service
lifecycle management. Service marketing is clearly an aspect of service lifecycle management but most
often does not encompass the truly transformational elements of building repeatable service delivery
methods and tools, which we include in the larger scope of service lifecycle management.
Client Value
Level 2
Level 3
Level 4
Level 5
Ad Hoc,
Opportunistic,
Heroic
Piloted, Experimental,
Pockets of Excellence
Deployed, Basics in
Place for All Key
Elements
Institutionalized, in
the Company DNA /
Fabric
Visionary, Agile,
Innovative, Continuous
Renewal and Improvement
Handcrafted
projects, unique,
highly dependent
on individual team
member skills.
Limited replication or
codification of service
solutions. Point product
solutions primarily
focused on rapid
implementation.
Clear, value-based
sales and marketing
messages for product,
vertical, geographic
audiences. Some level
of client value and ROI
measurement.
Client-centric, high
value services
developed and
packaged.
Demonstrated,
measurable business
value.
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Team Definition
and
Composition
Marketing
Level 1
Level 2
Level 3
Level 4
Level 5
Tactical. Limited
to no investment
in service
marketing.
Campaign-driven,
focused initiatives.
Service marketing
includes collateral, web
and in-person seminars,
and other promotions
with voice of the
customer for specific
service offers.
Programmatic and
comprehensive.
Service marketing target-market and
segment focus to
establish
differentiation.
None. Lack of
service marketing
organizational
definition.
Organizational structure
includes borrowed or
rotational roles to
support service
marketing efforts.
Permanent service
marketing roles
defined, staffed and
funded.
Effective service
marketing leadership
and management.
Service marketing
organization is strategic and
continually impacts
company's success.
No budgeting for
service marketing.
Business planning
does not
incorporate
service marketing.
Ad hoc, one off,
impact not
measurable.
Budgeting includes
service marketing costs
and projected results.
Business planning
capabilities are based
on individuals'
experiences.
Budgeting process
fully incorporates
service marketing
investments, revenue,
profit planning.
Mature business
planning capabilities.
Service marketing
and portfolio
planning is a
strategic component
of annual budgeting
process.
SPI Research recommends organizations start with service marketing creating sales tools, service
descriptions and value-based presentations. All of these activities will add value to the organization and
will start to build brand-awareness and generate leads. After the organization gains success and traction
with service marketing it will be in a better position to tackle true service lifecycle management, which
not only involves sales and marketing but also extends to product management and service execution
with repeatable tools, methods and systems.
Having a service marketing focus is not enough. Marketing must develop effective thought leadership,
marketing campaigns, sales tools and sales enablement to increase the firms brand awareness,
showcase thought leadership and bring in qualified leads. The most successful PS marketing efforts
require a strategic focus to ensure they augment and enhance the firms strategy. Marketing should be
charged with bringing the firms vision and strategy to light through effective positioning. Without a
seat at the executive table, marketing will be relegated to tactical lead generation activities. Effective
marketing requires dedicated, skilled personnel along with sustained funding.
SPI Research asked how effective service marketing was on a scale of 1 to 5, with 5 representing
excellent. Marketing effectiveness has consistently been given an even worse score than sales
effectiveness. This year marketing effectiveness improved significantly from an abysmal rating of 2.72
(54%) last year to a somewhat more respectable rating of 3.29 (65%) this year. More than 20% of
organizations give marketing effectiveness a failing grade of 1 or 2. For the 43.7% of firms who gave
2016 Service Performance Insight
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Survey
Revenue
Growth
Length of Sales
Cycle (days)
New Client
Revenue
Reference
Clients
Discounts
2.7%
9.6%
107.1
28.9%
65.4%
10.5%
18.2%
10.1%
95.1
32.7%
68.1%
9.3%
35.3%
9.6%
89.7
25.4%
69.8%
6.9%
34.5%
9.5%
83.7
26.4%
71.3%
7.0%
9.2%
15.1%
79.9
28.2%
75.0%
9.0%
100.0%
10.1%
88.2
27.4%
70.4%
7.7%
5 - High
Total/Average
Service Packaging
Defined service offering with supporting marketing materials detailing client value and benefits;
Comprehensive sales playbook with supporting sales collateral and materials;
Clearly defined and bounded service delivery scope, assumptions, processes, tasks, roles,
staffing requirements, duration, pricing structure and outcomes;
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Productized services can be stand-alone, fast start offerings, or they can be components of an overall
service portfolio. An organization can offer productized services in one or hundreds of locations.
Regardless of its reach, the service must possess the core attributes that make the training, sales and
delivery processes clear, consistent and repeatable.
Moreover, a productized service demonstrates the PSO has a consistent knowledge base and unique
intellectual property. This approach shows the PSO has the skills to deliver the service within a predefined time and cost. Without productizing, professional services are less tangible and the benefits
harder to define.
Service Performance Insight believes that systematic development of service packages is becoming
increasingly important for companies seeking market differentiation and improved competitiveness.
Service packaging is more successful when an organization uses a framework to choreograph roles and
responsibilities and define clear outcomes by phase. This approach leverages client knowledge from
existing project plans. The speed and quality of service packaging improve with experience.
The five phases of SPI Researchs SLM3 service packaging methodology are shown below. Each step
outlines key decision points and deliverables that break the service packaging effort into its measurable
and actionable components:
1. Innovate Identify service packaging candidates; conduct research; analyze the market; fund
the effort.
2. Define Plan the overall effort; define requirements and content; design service packaging
methods, tools, and processes.
3. Develop Build service products based on best practices, consistent methodology, and tools;
test assumptions.
4. Launch Conduct beta test; assemble sales, marketing, and delivery documents; train sales and
service professionals; execute sales and marketing campaigns; deliver with quality.
5. Optimize Develop measurements and rewards; garner sales, PS organization, and client
feedback; identify areas for improvement. Propose significant changes and add-on services back
through the Innovate stage.
Table 58 presents the benefits organizations will derive by following a robust methodology such as
SLM3.
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Benefits
Innovate
Define
Develop
Launch
Optimize
Clear Sales and Marketing plan improves Sales and Marketing effectiveness
Better Bid-to-Win Ratio
Larger pipelines
Satisfied, reference clients
Solution development effectiveness requires consistent PS and Sales executive funding and support. Ad
hoc teams of benched consultants cannot be effective in developing a compelling and meaningful
solution development strategy and program. Based on the Service Lifecycle Management Maturity
Model benchmark, very few organizations are effective at service productization. Creating an effective
and efficient solution development process is, in itself, a difficult undertaking. Most firms are struggling
to do this because solution development crosses over traditional functional boundaries and requires
both collaboration and change. Getting all of the constituent groups - professional services, sales,
marketing, product management and channel partners - on the same page to create compelling
solutions for the targeted markets is a daunting task.
Solution development requires significant leadership, organizational commitment and change
management. Service Performance Insight believes that the following are critical success factors for
instantiating and sustaining a successful solution development program:
Market-driven focus;
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Resource commitment;
Survey
Annual
Revenue
Growth
BidWin
Ratio
Size of
Sales
Pipeline
Revenue
per
consultant
Revenue
per
employee
Backlog
EBITDA
1 - Low
2.5%
9.4%
3.96
192%
$144
$104
23.6%
10.1%
9.6%
6.9%
4.11
173%
194
149
40.9%
17.2%
29.4%
9.5%
4.93
164%
194
156
46.2%
13.5%
43.1%
10.5%
4.87
175%
198
160
38.5%
15.4%
5 - High
15.4%
12.6%
5.83
171%
213
160
36.4%
20.3%
Total/Avg.
100.0%
10.1%
4.97
172%
$197
$157
40.4%
15.9%
Survey Results
The following section reviews and analyzes 2016 PS Maturity benchmark results from 549 participating
Professional services organizations. In this section SPI Research analyzes 35 Client Relationship key
performance measurements that are critical for measuring sales, marketing and solution development
effectiveness.
The size of the deal pipeline is an important predictor of future revenue. The size of the deal pipeline
has declined precipitously from last year (172% this year compared to 199% last year). This significant
decline is a powerful predictor of future declines in PS revenues. Caution must be paid!
2016 Service Performance Insight
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95
2015
ESO
PSO
Americas
EMEA
APac
27.5%
34.9%
23.9%
29.5%
22.9%
25.5%
4.95
4.98
4.94
5.08
4.49
5.43
172%
196%
160%
178%
153%
184%
88
98
83
90
83
86
7.7%
10.8%
6.2%
8.2%
6.6%
6.8%
70.4%
65.4%
72.8%
71.2%
68.8%
69.6%
3.59
3.63
3.57
3.60
3.50
3.81
3.57
3.56
3.57
3.60
3.49
3.53
3.29
3.20
3.34
3.29
3.26
3.44
Another indicator of softening demand is the level of discounting. Average discounts edged up from
7.3% last year to 7.7% this year. Embedded PSOs reported significantly higher levels of discounting,
longer sales cycles and fewer client references than independents. The highest average discounts were
reported by embedded SaaS and Software PSOs at 11.8%. They also gave poorer ratings for sales,
marketing and solution development effectiveness. Larger embedded PSOs should invest in their own
solution architects and service marketing and packaging. These efforts pay dividends in reduced
discounting and higher levels of client referenceability and satisfaction.
By organization size, the deal pipeline is strongest for the largest organizations and weakest for the
smallest. The smallest firms tend to live deal to deal with limited future visibility. Interestingly, client
referenceability declines with organization size as larger PSOs cannot afford to provide a personalized
2016 Service Performance Insight
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96
Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
27.7%
28.7%
29.0%
26.0%
23.9%
28.4%
4.96
4.89
5.14
4.63
4.74
5.31
143%
159%
171%
175%
184%
196%
73
88
91
96
86
83
6.3%
7.5%
6.9%
7.5%
8.8%
9.8%
73.0%
70.2%
73.6%
68.5%
72.0%
64.9%
3.58
3.51
3.49
3.66
3.52
3.86
3.47
3.50
3.45
3.64
3.65
3.77
3.06
3.15
3.24
3.39
3.27
3.60
By vertical, embedded software PSOs reported the strongest deal pipeline while architects and
engineers reported the weakest. Architects reported the highest levels of client referenceability,
software PSOs reported the poorest. Service discounting is prevalent in embedded PSOs, particularly if
they work on a time and materials basis with known rate cards. SaaS PSOs reported the best sales,
marketing and solution development effectiveness; hardware PSOs reported the worst.
Tables 62 and 63 show key client relationships metrics by vertical market. Best performing verticals are
highlighted in green, worst are highlighted in red. Accountancies had the worst scores.
Table 62: Client Relationships KPIs by Vertical Service Market
Key Performance Indicator (KPI)
Revenue from new clients
Bid-to-win ratio (per 10 bids)
Deal pipeline relative to qtr. bookings
forecast
Sales cycle (days: qualified lead to
contract signing)
Average service discount given clients
IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Network
25.9%
31.8%
23.2%
21.7%
44.2%
19.7%
37.9%
4.79
5.04
5.39
4.62
5.18
4.32
4.93
172%
212%
151%
142%
190%
167%
157%
88
104
78
93
93
84
75
7.6%
11.8%
4.9%
4.0%
11.8%
8.3%
8.6%
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IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Network
72.5%
64.1%
74.2%
74.5%
65.9%
68.6%
64.6%
3.56
3.63
3.68
3.52
3.83
3.64
3.27
3.56
3.49
3.55
3.48
3.70
3.64
3.29
3.33
2.98
3.29
3.31
3.53
3.43
3.20
Staffing
Other PS
18.3%
19.0%
17.6%
21.2%
4.73
5.29
4.55
5.88
5.46
139%
196%
133%
164%
167%
163%
64
115
50
67
58
103
7.1%
7.1%
4.0%
7.0%
2.8%
3.1%
67.9%
69.3%
70.8%
76.8%
65.6%
71.3%
3.64
3.50
3.23
3.67
3.56
3.64
3.71
3.85
3.54
3.83
3.78
3.73
3.71
3.29
3.46
3.25
3.33
3.45
R&D
VAR
Acct.
25.4%
39.2%
4.75
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Survey
ESO
PSO
Americas
EMEA
APac
Business/Management Consulting
22.2%
15.2%
25.5%
20.9%
24.0%
27.7%
Technology or IT Consulting
41.3%
45.7%
39.2%
41.3%
42.0%
39.7%
Managed Services
11.6%
15.1%
10.0%
12.6%
9.3%
10.8%
Staff Augmentation
6.5%
4.8%
7.3%
7.3%
4.7%
4.7%
10.3%
7.0%
11.8%
9.3%
13.8%
6.9%
Other
8.1%
12.2%
6.2%
8.7%
6.2%
10.1%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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Survey
Annual
Revenue
Growth
Under 10%
23.9%
6.9%
10% - 20%
11.3%
20% - 30%
% of revenue
from new clients
Size of
Pipeline
Billable
Utilization
Project
Margin
EBITDA
5.7%
149%
71.6%
31.1%
14.7%
5.0%
4.1%
164%
71.2%
33.1%
15.4%
16.7%
9.5%
8.3%
181%
69.4%
36.0%
15.1%
30% - 40%
25.0%
11.5%
7.9%
180%
70.2%
35.1%
15.3%
40% - 50%
12.0%
15.0%
11.4%
199%
70.2%
33.6%
20.7%
Over 50%
11.1%
14.9%
11.6%
175%
70.9%
35.8%
13.6%
100.0%
10.1%
7.8%
173%
70.6%
33.9%
15.6%
Total/Average
Employee
Growth
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Survey
Annual
Revenue
Growth
BidWin
Ratio
Size of
Pipeline
Refer.
Clients
Util.
On-time
project
delivery
Service Revenue
Service Bookings
28.9%
10.7%
4.81
176%
69.5%
69.9%
16.1%
10.9%
4.90
198%
69.1%
9.8%
9.2%
4.59
172%
Client Satisfaction
10.9%
8.7%
5.03
34.3%
10.5%
Total / Average
100.0%
10.3%
Service Margin
Rev. per
billable
consult.
EBITDA
76.8%
$197
13.4%
68.7%
74.0%
213
15.2%
68.6%
69.4%
71.5%
219
15.8%
154%
71.3%
70.4%
74.4%
166
16.7%
5.16
160%
72.0%
72.2%
78.6%
197
17.9%
4.95
171%
70.4%
70.5%
76.2%
$198
15.8%
This year service bookings measurements produced the most revenue growth and largest pipelines.
Service margin targets are harder to measure and calculate plus they can only be measured after the
project has been completed. Many firms are switching to Service Margin as a primary metric but they
use average cost figures to calculate deal margin to simplify sales compensation. Interestingly, service
margin as the primary sales measurement produced the poorest results in bid-win ratios, reference
clients and on-time project delivery.
Surprisingly, the worst service sales measurement is client satisfaction reported by 10.9% of the
benchmark respondents. With client satisfaction as the primary measurement, service sales people
have a vested interest in the quality and timeliness of project delivery. In this years survey, for sales
teams based on client satisfaction, their firms delivered mediocre on-time project delivery and the
poorest revenue and pipeline growth and lowest consultant revenue yield. The pursuit of client
satisfaction at any cost may incent the sales force to drive service delivery to do whatever it takes
without regard to margin or future growth.
Regardless of primary sales measurement, clarity and fairness drive the best results. SPI recommends
an open book approach to allow sales people to measure and improve their own performance.
Primary Service Target Buyer
SPI Research asked who is the primary buyer for your services? For the 549 benchmark respondents,
the primary target buyer is most likely to be a line of business executive (40%); CIO (23.6%); other
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101
Survey
Annual
Rev.
Growth
Bid-toWin
Ratio
CEO
11.5%
10.6%
4.80
158%
COO
7.8%
8.2%
4.99
CIO
23.6%
11.8%
Line of Business
39.9%
Primary Target
Buyer
Purchasing
Other
Total/Avg.
Util.
On-time
project
delivery
Rev. per
billable
consultant
Project
Margin
73.7%
70.3%
79.4%
$170
33.8%
187%
68.9%
72.1%
71.4%
205
32.9%
4.94
189%
71.8%
71.6%
75.7%
227
35.8%
10.2%
5.03
168%
69.4%
70.4%
77.0%
190
33.8%
0.0%
NA
NA
NA
NA
NA
NA
NA
NA
17.3%
8.8%
4.86
159%
69.3%
68.8%
74.7%
193
32.2%
100.0%
10.3%
4.95
172%
70.4%
70.6%
76.1%
$198
33.9%
Size of Reference
Pipeline
Clients
The majority of firms sell to a line of business executive. Selling to this buyer type has become a
necessity as buying power for many modern, mobile, business applications has shifted to line of
2016 Service Performance Insight
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102
Survey %
Pipeline
Revenue
Growth
1 - 2 wins
13.8%
149%
5.6%
66.3%
72.3%
$132
3 - 4 wins
30.2%
168%
8.8%
69.0%
72.6%
144
5 - 6 wins
30.4%
170%
11.0%
71.4%
77.2%
158
7 - 8 wins
19.1%
197%
13.7%
72.1%
78.9%
182
6.4%
173%
12.3%
76.3%
83.9%
202
100.0%
172%
10.2%
70.4%
75.9%
$157
Over 8 wins
Total / Average
Billable
Utilization
On-time
Delivery
Revenue /
Employee (k)
Table 68 depicts the positive impact of improving bid to win ratios through better deal qualification;
reference selling; improved positioning to target the right markets and clients; and improving overall
quality and client satisfaction resulting in more and better referrals.
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104
Pipeline
Bid-to-Win
Ratio
Revenue
from New
Clients
Project
Duration
(manmonths)
Project
Margin
5.2%
118%
5.26
21.0%
23.8
30.8%
22.2%
8.3%
154%
4.77
27.9%
23.1
32.4%
60 - 90 days
27.8%
11.6%
169%
5.01
29.0%
30.8
35.5%
90 - 120 days
18.7%
11.4%
200%
5.32
28.3%
38.5
34.8%
14.1%
12.6%
181%
4.77
28.2%
40.3
35.0%
10.0%
7.8%
193%
4.43
27.9%
50.4
31.4%
Total / Average
100.0%
10.1%
172%
4.94
27.9%
33.3
33.9%
Length of Sales
Cycle
Survey
%
Revenue
Growth
7.1%
30 - 60 days
Under 30 days
Service Discounting
In professional services it is more difficult to develop a pricing strategy than in product-based
organizations. It is easy to do comparative shopping at a grocery store or for products on-line. In
professional services, pricing is more art than science with wider variability in terms of costing,
estimating, proposing and pricing. Professional services executives cannot just look at expected project
cost, sales forecasts, or some other key performance indicator to set pricing. Supply and demand
definitely come into play. The more unique the offering; the more demonstrable the return on
investment; the larger the reference base; the more premium pricing is warranted.
The bid-to-win ratio is critical, but must be viewed in conjunction with project margin to determine the
optimal pricing strategy. Professional services executives should not mind losing bids when they hurt
margin because bargain basement pricing rarely results in win-win partnerships. If firms are
continually asked to discount pricing it is a sure sign that something is wrong. Either they have not
properly positioned the value they provide or they are moving into a commodity market. There is
absolutely no way service organizations can make up in volume the amount they lose per deal because
margins are too thin and there is no way to recoup hours worked at cheap rates.
As shown in Table 70, the majority of firms (76.3%) offer discounts of less than 10%. Although limiting
discounting does negatively impact growth, it enhances bid-win ratios, billable utilization, on-time
project delivery and client referenceability.
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Survey
%
New
Client
Revenue
Revenue
Growth
Bid to
Win
Sales
Pipeline
Billable
Utilization
On-time
projects
Project
Margin
None
20.0%
22.1%
8.7%
5.11
165%
72.6%
80.5%
33.9%
Under 5%
23.1%
25.2%
8.6%
4.94
166%
71.2%
76.6%
33.6%
5% - 10%
33.2%
28.1%
10.9%
4.89
167%
69.3%
75.4%
33.1%
10% - 20%
16.5%
35.7%
13.9%
5.06
190%
71.9%
74.8%
36.8%
20% - 30%
5.0%
30.5%
8.1%
4.85
192%
66.9%
70.8%
30.5%
Over 30%
2.1%
42.3%
14.8%
3.68
209%
60.0%
55.0%
33.8%
100.0%
27.9%
10.3%
4.95
172%
70.5%
75.9%
33.9%
Total / Avg.
Profit is the fuel that drives expansion. While not every project achieves its desired profitability goal,
one or two money-losing projects can quickly undermine all net profit. Critical analysis should be
undertaken to review the project and client portfolio to determine the types of clients and projects that
make the most money. Quite often this analysis reveals 80% of profit is coming from only 20% of clients
and conversely, the firm may make no money at all on smaller transactions or certain customers.
Professional services organizations must use both their application infrastructure, as well as pricing tools
to improve financial performance. This combination can help PS executives better understand the range
of pricing available to them, combined with the probability of winning bids.
When creating a large bid all costs including sales costs should be measured. Very few projects are
delivered precisely on time and on budget, so change control is an important element of pricing. If a
client demands pricing concessions, scope must be contained, but the client must also understand and
accept the risks. Best practices in pricing include creating a dedicated proposal center to ensure all
proposals are of the highest quality. Bid, estimate, pricing and contract reviews are all good investments
which pay dividends by improving project margins and reducing the risk of overruns and losses.
Referenceable Clients
The percentage of reference clients is considered one of the most important KPIs in the professional
services sector. Average client referenceability has steadily declined from 74.5% in 2013 to 73.8% in
2014 to a new low of 70.4% in 2015. Table 71 shows only 33.2% of the benchmark respondents claim
over 80% of their clients are referenceable. On the other hand, 45.2%, up from 27.7% last year, report
less than 70% of their clients are referenceable. This is another very concerning metric trend.
Embedded organizations reported only 65.4% of their clients are referenceable, down from 67% last
year. Independents fared a little better with 72.8% referenceable clients this year compared to 76.8%
last year. Clearly these numbers must improve to sustain PS industry growth.
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Survey %
Revenue
Growth
Bid-to-win
ratio
Billable
Utilization
Under 50%
13.4%
8.9%
4.19
67.7%
50% - 60%
15.7%
10.0%
4.53
67.1%
60% - 70%
16.1%
10.8%
5.02
69.3%
70% - 80%
21.6%
8.8%
4.78
71.8%
80% - 90%
17.5%
11.9%
5.24
73.2%
Over 90%
15.7%
11.5%
5.99
72.4%
Client references are a leading
Total / Avg.
100.0%
10.3%
4.97
70.4%
indicator of organizational
success. As this percentage
Source: Service Performance Insight, February 2016
increases, so does the
probability of high levels of growth; higher bid-to-win ratios and lower sales costs. Any maturity
improvement plan must address measuring and improving client satisfaction and building references.
Best practices include post-project engagement surveys; acquiring client references and testimonials as
part of project close-out along with frequent and consistent project quality reviews. Executive teams
should review the project dashboard at weekly meetings and immediately assign executives to troubled
projects.
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2015
Survey
58.8%
Fee Structure
ESO
PSO
46.7%
44.7%
47.6%
36.3%
39.7%
41.9%
2.1%
6.4%
2.9%
100.0%
Total / Average
Americas
EMEA
APac
47.6%
44.9%
44.6%
38.7%
40.0%
38.8%
40.7%
5.1%
7.0%
5.5%
8.3%
8.8%
7.2%
8.2%
6.7%
6.9%
8.1%
5.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
By vertical, architects and SaaS PSOs rely on fixed price contracts. IT consultancies favor time and
materials contracts. All verticals have moved to more shared risk/performance and other types of
contracts this year. As the SaaS market has become more mature a greater emphasis is being placed on
customer adoption so SaaS firms focus on time to value with fixed price rapid implementation
contracts. Net profit is not necessarily tied to pricing structure as it is possible to make good service
2016 Service Performance Insight
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108
Software
Mgmt.
Consult.
57.9%
49.1%
39.8%
32.4%
39.7%
5.9%
Fee Structure
Total
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Network.
33.7%
37.4%
27.1%
33.4%
40.3%
55.9%
53.4%
39.1%
45.3%
4.1%
9.7%
4.8%
5.2%
7.6%
8.1%
3.9%
7.0%
10.2%
5.6%
4.0%
26.2%
13.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
VARs rely on time and materials contracts while advertising and marketing firms depend on fixed fee
contracts. Accountancies and research and development organizations favor annual retainers and
intellectual property and licensing arrangements.
Table 74: Fee Structure by Service Market Vertical
Fee Structure
Advert.
(Marcom)
R&D
VAR
Acct.
23.3%
73.6%
52.5%
22.2%
37.8%
46.5%
47.3%
20.1%
28.7%
70.3%
24.4%
36.5%
15.3%
4.9%
2.7%
1.3%
23.4%
7.7%
14.0%
1.4%
16.2%
6.3%
14.3%
9.2%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Total
Staff.
Other PS
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110
Survey
ESO
PSO
637
660
625
9.4
16.1
EMEA
APac
666
522
776
5.8
10.9
6.0
6.5
$1.47
$1.73
$1.29
$1.61
$1.07
$1.51
$92
$99
$87
$93
$85
$107
16.6%
20.2%
14.0%
17.9%
12.9%
15.6%
5.7
6.7
5.1
5.8
4.8
6.8
$1.74
$1.92
$1.65
$1.84
$1.33
$1.88
$97
$96
$97
$97
$91
$113
16.9%
18.4%
16.2%
17.2%
15.5%
17.9%
7.4
9.7
6.3
8.2
5.1
7.9
$1.27
$1.32
$1.25
$1.38
$0.96
$1.27
$103
$101
$105
$108
$87
$113
12.5%
12.7%
12.4%
12.5%
12.3%
13.2%
5.6
4.8
5.9
5.8
4.2
7.8
$1.52
$1.55
$1.51
$1.68
$1.14
$1.39
$119
$119
$119
$125
$99
$129
14.8%
15.8%
14.4%
15.8%
12.5%
13.6%
Americas
Table 76 shows that both quotas and compensation go up with the size of the organization. It also
shows the largest organizations shift to a higher component of leveraged compensation; in other words,
lower base salary and a higher component of commission or variable compensation.
Table 76: Professional Services Sales KPIs by Organization Size
Key Performance Indicator (KPI)
Organization Size (people)
Product Sales number of reps selling
Prod. Sales Ann. PS Bookings Target (mm)
Product Sales Annual Rep. Base Pay (k)
Product Sales On-target Variable
Service Sales number of reps selling
Service Sales Ann. PS Book. Target (mm)
Service Sales Annual Rep. Base Pay (k)
Service Sales On-target Variable
Under 10
10 - 30
31 - 100
101 - 300
301 - 700
Over 700
20
65
200
500
3,618
2.9
6.5
6.9
8.9
14.9
19.1
$0.95
$0.89
$1.41
$1.63
$1.59
$2.11
$83
$89
$89
$97
$93
$96
10.7%
16.8%
16.4%
18.6%
16.6%
16.6%
1.6
1.8
3.1
5.6
10.2
15.5
$0.65
$1.10
$2.05
$1.75
$2.29
$1.69
$82
$91
$94
$107
$101
$95
12.8%
16.4%
19.9%
14.5%
18.0%
16.1%
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Under 10
10 - 30
31 - 100
101 - 300
301 - 700
Over 700
2.0
2.4
4.4
8.5
13.8
17.9
$0.63
$0.75
$1.03
$1.64
$1.80
$1.58
$94
$94
$106
$106
$109
$104
9.3%
12.6%
11.8%
11.3%
16.3%
14.3%
2.0
1.8
3.5
5.8
9.1
14.6
$0.46
$1.01
$1.59
$1.74
$2.40
$1.61
$104
$108
$127
$120
$130
$116
13.0%
13.5%
15.9%
14.0%
16.8%
14.9%
Table 77 compares the base, service bookings quota and variable by PS Market. For the most part there
is consistency in base salaries, quotas and on-target variable between software, SaaS and hardware
PSOs. Executives in management consultancies and marketing and advertising firms have the potential
to make more money than their counterparts within technology product companies but they also incur
greater risk and must be experts in their fields. It appears SaaS companies have shifted a greater burden
for service sales to the product sales force as their overlay PS sales force carries lower PS quotas. SPI
Research sees a proliferation of sales roles in product companies major account sales; vertical industry
sales; product specialty sales; consulting sales; engagement managers; account managers; territory
managers and the list goes on and on. From an outsiders point of view the sheer array of solution
sellers is overwhelming and must be confusing for clients. Product companies would be well-served to
curtail the proliferation of sales people and overlay sales people in favor of real solution selling experts.
Embedded hardware reps have greater earning potential based on a considerably higher variable
(leveraged) compensation component.
Table 77: Sales Structure by Service Market Vertical
Key Performance Indicator (KPI)
IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
573
590
255
429
582
458
1,469
7.2
18.7
2.8
2.5
17.9
7.5
17.5
$1.30
$1.82
$1.20
$1.46
$1.79
$1.48
$1.58
$86
$103
$94
$84
$101
$87
$79
15.4%
20.0%
10.5%
14.3%
24.0%
11.0%
19.4%
5.5
5.0
4.8
4.4
10.2
4.7
13.5
$1.73
$1.90
$1.35
$1.93
$2.50
$1.57
$2.03
$94
$100
$107
$99
$105
$82
$86
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Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
18.9%
18.0%
12.8%
12.6%
18.4%
14.5%
18.8%
5.9
8.5
7.7
5.9
11.6
4.5
20.3
$1.43
$1.25
$1.03
$1.08
$1.46
$1.18
$1.75
$103
$107
$121
$93
$106
$75
$93
12.6%
12.1%
15.2%
10.6%
15.5%
10.0%
14.4%
6.3
3.6
5.1
4.8
5.9
3.2
11.7
$1.61
$1.42
$1.56
$1.48
$1.82
$1.53
$1.21
$121
$130
$131
$110
$116
$91
$99
14.9%
16.6%
17.7%
11.3%
20.0%
12.0%
12.5%
Other PS
206
2,407
1,462
5.2
5.3
6.0
9.2
$1.43
$0.55
$1.18
$1.31
$1.15
$86
$98
$83
$94
$84
$89
5.0%
23.0%
8.5%
14.3%
20.8%
17.5%
3.8
3.2
5.2
3.3
6.5
6.0
$1.58
$1.54
$0.45
$2.29
$1.33
$1.15
$103
$95
$95
$113
$80
$94
10.0%
22.5%
7.5%
11.5%
23.8%
10.0%
8.3
5.9
2.3
3.5
14.8
4.1
$1.69
$1.23
$0.88
$0.69
$1.00
$0.58
$105
$102
$95
$88
$94
$97
10.0%
13.3%
3.8%
5.7%
19.4%
12.5%
12.8
3.3
4.8
3.8
7.7
2.0
$1.21
$1.94
$0.55
$1.21
$1.10
$1.31
$110
$134
$75
$121
$120
$112
10.0%
16.1%
4.5%
13.8%
24.4%
10.5%
VAR
Acct.
2,577
673
152
7.8
3.0
$1.63
Advert.
(Marcom)
Staff.
R&D
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Level 1
Initiated
Hire as needed.
Generalist skills.
Chameleons,
Jack of all
Trades.
Individual heroics.
May perform
presales as well
as consulting
delivery.
Level 2
Piloted
Begin forecasting
workload. Start
developing job and
skill descriptions &
compensation plans.
Rudimentary career
paths. Start
measuring employee
satisfaction
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
Todays Professional Services leaders must squarely confront the realities of attracting and retaining a
younger workforce against the backdrop of a technical labor shortage. Globalization has significantly
impacted workforce strategies with many service providers providing hybrid on and off-site resources
via regional and global competency centers. Based on technology advances, consulting emphasis is
shifting toward business process and vertical industry expertise however demand for horizontal
application and technical skills remains high.
SPI Research found Human Capital Alignment metrics contain the highest number of performance
indicators with extremely strong correlation to success meaning, employees, and how they perform
once onboard ultimately determine success or failure (Table 80).
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Level 1
Level 2
Level 3
Level 4
Level 5
3.45
4.23
4.47
4.73
4.83
9.4%
7.6%
7.0%
6.9%
6.9%
6.6%
4.6%
4.5%
4.5%
4.9%
284
194
184
190
205
1,411
1,415
1,464
1,490
1,470
2.60
3.23
3.53
3.75
4.41
62.8%
70.0%
72.7%
78.0%
77.9%
0.7%
3.8%
8.5%
19.1%
36.0%
The worlds greatest economic asset is the hard work, motivation and resilience of its workers. When
employees have the opportunity to master new skills, contribute their full talents, and be rewarded
fairly, businesses, families and communities thrive. However, too many workers do not progress to
more senior roles, despite their desire to learn new skills and earn higher-paying jobs. Increasingly
developed nations are creating initiatives to realize the full potential of their workforces, by
empowering workers with the education and training they need to contribute more, earn higher wages
and build a fulfilling career.
In the technology professional services space, the war for talent continues unabated. In fact, the gap
between the demand for technology consulting workers and the talent with the requisite critical
thinking, analytic and communication skills to fill these roles is widening. The worlds economy has
become knowledge and project-based yet a looming talent cliff threatens to derail economic growth.
By 2018, the US will face a projected shortfall of 223,800 workers with background in Science,
Technology, Engineering and Math. By 2022, the U.S. is projected to have a deficit of at least one million
college-trained workers in science- and technology-related fields. McKinseys and Deloittes research
projects a shortage of 30 to 40 million college-educated workers by 2020, projecting future
unemployment gaps in India and China where educational opportunities are limited.
Global forces have come together to produce this talent cliff tsunami:
Baby Boomers (born between 1946 and 1964) are exiting the workforce without enough skilled
gen X, gen Y and millennial workers to replace them. The first baby boomers starting turning 65
in 2011. 80 million will exit the workforce over 20 yearswhich yields 4 million a year, or
10,000 a day who must be replaced.
Underfunding of education particularly in Science, Technology, Engineering and Math meaning
not enough college graduates with the requisite skills for todays technology-centric roles.
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Education systems are struggling to keep up with the need to arm the workers of tomorrow with
active, hands-on technology-based learning. At the same time, efforts must be made to
overcome the traditional gender bias which persists for learners, employees and employers in
technology fields.
A growing gender gap in which less than 25% of IT jobs in developed countries are held by
women. According to HR Magazine, lack of gender diversity in IT costs the UK over $4 billion
annually. Further, in a 2014 TechWeek study of the UK, only one in 20 IT job applicants is a
woman. This growing gender gap starts at an early age with parental and education bias which
mushrooms throughout education and employment systems to solidify IT gender bias.
Combined with unenlightened immigration policies which have capped the number of visas for
skilled knowledge workers. This year in the United States, 233,000 foreigners applied for the H1B, the most common visa for high-skilled foreign workers. That's up significantly from 2014
(172,500 applications) and nearly double the applicants from two years ago (124,000) but only
85,000 H1B visas were granted, primarily for workers with Masters degrees.
All of this at exactly the same time that growth in professional service revenue is surging and buy local
has become a new mantra! Highly skilled workers are in great demand, making it critical for
organizations to become a talent magnet to create a steady pipeline of top people.
Talent Priorities
Changing workforce dynamics are driving PS executives to create a different type of workforce that
requires technical and client management competency with equal parts of flexibility, autonomy and
accountability. One of the most important challenges for todays Professional Services leaders is
competing for top talent in a level, global, web-enabled playing field of digital natives who value
collaboration and cool new technologies more than security and remuneration. Todays Human
Capital Alignment challenges include:
Overcoming traditional gender biases to educate, attract and retain more female and minority
workers;
Taking on the increased burden of healthcare costs which continue to rise faster than workforce
productivity improvements;
Worldwide growing income and wealth inequality which reduces the ability of low-skilled
workers to climb the economic and educational ladder to become the professional services
employees of the future;
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Talent Strategies
To fill the workforce void, more and more PSOs are developing innovative new talent strategies: close
partnerships with local universities; new hire internships; job-sharing programs; flexible work study
childcare options; on-boarding programs; on-the-job training and mentoring combined with extensive
on-shore assignments for off-shore employees. Increasingly the reputation of the firm as a great
place to work is just as important and intimately intertwined with client referrals. What this all boils
down to is that talent is fast becoming the number one make-it or break-it element in professional
services growth or even survival.
To meet these demands, top PSOS are:
Focusing on programs to hire and train entry-level talent with skills in science, technology, math
and engineering combined with strong written and oral communication skills.
Investing in internships and college hiring to groom the next generation of consultants.
Cross-training current employees who have strong analytic and communication abilities.
Sponsoring training and work visas for international workers with strong backgrounds and skills.
Offering flexible work arrangements work from home, job-sharing, remote service delivery
and child care options along with generous time-off and sabbatical arrangements.
Building a culture of excellence the best and brightest are attracted by leading edge
technologies, clients and projects including a culture that supports collaboration and innovation.
Paying for performance linking compensation to knowledge and skills growth along with
contributions to the practice not just revenue generation alone.
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The traditional consulting pyramid (Figure 47) is a workforce model based on Finders, Minders and
Grinders. The Managing Partner (PS VP) is the chief client relationship manager, responsible for
developing a trusted advisor relationship with key clients. The Managing Partner is responsible for
developing new business and managing the profitability of the practice. The Minders are the regional
managers, project managers, engagement managers and case team leaders responsible for translating
the customers requirements into a project plan and then managing all aspects of project delivery. In
the traditional consulting pyramid, the Grinders are the technology and business consultants who
perform the majority of the work. In the traditional model, the Grinders (young consultants fresh outof-college or graduate school), deliver the majority of project billable hours and profit.
Many independent PS firms have developed a solution selling sales force, often with lackluster results.
The fundamental reason why the classic consulting pyramid has lasted for hundreds of years is that PS
clients do not want to be sold they seek consulting firms based on their demonstrated ability in
solving specific business problems. Prospective consulting clients require the senior practice leader to
help them articulate and design a solution. On the other hand, embedded PSOs rely heavily on the
product sales force to bring them into deals so the role of embedded PS leaders is one of forging
alliances with other cross-functional executives as well as building the overall PS governance structure.
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Worldwide the traditional consulting pyramid is alive and well with the percentage of resources in
management (13%), project management (16%), business consulting (29%) and technical consulting
(42%) reflecting the majority of work is performed by business consultants and technical resources at
the base of the pyramid (Figure 48).
Since the 2011 SPI Research PS Pricing report, the business consulting job category has experienced the
greatest growth; growing from 22% of the global PS workforce in 2011 to 29.4% in 2015. The
percentage of PS workers in billable management roles has declined from 14.8% in 2011 to 13.2% in
2015. Project management roles have declined from 20.8% to 15.5% while technical consulting roles
have declined slightly from 42.5% to 41.9% of the workforce.
This shift to more business consulting and less technical consulting roles reflects underlying technology
shifts from complex and custom to social, mobile and cloud-based. These changes in workforce
demographics clearly mirror overall shifts in the technology sector as software and hardware move to
the cloud, requiring less customization and integration, so fewer technical consultants and project
managers are required while streamlining and enhancing business processes has become a priority.
As technology buying power has shifted from IT to business buyers, significantly more industry, business
process, workflow and change management skills are required. Increasingly, Professional Services firms
are starting to recruit and hire consultants who not only possess strong analytic and technical skills but
are also able to communicate effectively. This workforce change has significant implications for
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Based on our research and discussions with top-performing PS organizations, four areas must be
addressed to develop best consulting talent practices.
1. Confidence in leadership - Like everything else, it starts with effective leadership. Leaders who
are clear about the future direction of the firm, who understand and are able to take advantage
of changing market dynamics and are able to openly and honestly communicate the direction of
the company and the role employees play in shaping it are crucial to success. PS is a logical,
knowledge-driven business so leaders must focus on clarity and a few but impactful
improvement priorities. Each of the best firms emphasize open and transparent communication
based on a foundation of ethical leadership, open books and systems.
2. Great place to work top performing firms find innovative ways to help over-worked
consultants maintain life/work balance. From a facility point of view, firms focus on two
priorities creating open, team-centric workspaces where project teams can meet and
collaborate as well as virtual work-from-anywhere environments with state-of-the-art
collaboration and remote access tools. Despite the fact that most work is delivered virtually or
at the clients site, top firms ensure there are opportunities throughout the year for consultants
to meet to enhance their knowledge and skills while celebrating achievements. An ethical, open
and recognition rich environment provides the cornerstone of great work places.
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Growth
Opportunities
Culture
Confidence in
Leadership
Agile, performance
oriented
Virtual/flexible/ remote
work
Well-defined skills
Mentoring Coaching
Collaborative
Communicative
Recognition Rich
Invest in people
Personality fit
Access to knowledge
Ethical, open
On the technology front, SPI Research predicts Human Capital Management (HCM) systems will increase
in importance and usage across the service industry. Traditional HCM applications for recruiting,
performance, learning and compensation are moving to the cloud with exciting new social functionality
combined with mobile employee access for self-managing careers, skills and preferences. The training
industry has exploded with innovation, merging learning and skill-building with on-line video and
gamification. In the people-based business of PS, it is only a matter of time before talent management
(HCM) and resource management (PSA) functionality become intertwined. Already exciting new
solutions from Workday, FinancialForce and SAP Successfactors are starting to emerge to seamlessly
post job requisitions and skill profiles based on resource demand. Soon vendors and consulting firms
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Survey Results
SPI Research analyzed 26 Human Capital Alignment key performance measurements that are critical to
attaining superior employee performance. Table 82 portrays two alarming trends in human capital
alignment. The chief issue facing PS employers is that of retention. Skilled employees have more career
choices than ever before resulting in the high levels of voluntary attrition. Fewer employees would
recommend their company as a great place to work. Many overwhelmed consultants are choosing to
leave professional services altogether, preferring the stability and lower stress of corporate positions.
Management span of control continues to increase potentially undermining the role of leadership in
being able to support employee development. At the same time, several positive trends have
emerged. Enhanced recruiting and ramping systems and practices have reduced the time it takes for
find, hire and ramp new employees. A significant factor underlying this improvement is an increase in
the number of guaranteed training days per employee. Another positive trend is that firms are
providing more clarity around job roles and career path options.
Table 82: Human Capital Alignment Pillar 5-year trend
Key Performance Indicator (KPI)
2011
2012
2013
2014
2015
Voluntary attrition
7.4%
7.2%
8.3%
8.9%
7.9%
4.20
4.29
4.28
4.24
4.19
9.76
9.24
10.13
10.05
11.52
60.1
62.8
61.2
61.8
60.5
66.6
64.4
68.7
64.1
57.9
8.09
7.67
9.01
8.20
8.92
3.28
3.10
3.23
3.14
3.29
69.6%
70.3%
70.1%
71.0%
70.6%
Table 83 summarizes important talent management questions by organization type and location.
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2015
ESO
PSO
7.8%
7.0%
8.1%
5.1%
5.5%
4.19
EMEA
APac
8.2%
6.3%
8.9%
4.9%
5.7%
3.8%
4.4%
4.10
4.24
4.20
4.18
4.22
11.52
11.43
11.56
11.55
11.21
12.36
60.5
64.2
58.7
61.9
59.2
51.3
57.9
67.7
53.2
57.6
62.0
45.9
8.92
9.92
8.44
9.17
7.91
10.21
3.29
3.17
3.35
3.26
3.29
3.58
70.6%
68.6%
71.5%
70.6%
70.9%
69.4%
Americas
Independents are more likely to refer their firm as a great place to work than their embedded
counterparts. APac is more likely to recommend the firm as a great place to work than the Americas or
EMEA. Management span of control has been inching up year over year, moving from 9.76 employees
per manager in 2011 to todays high water mark of 11.52 employees per manager. The average time to
recruit and hire and ramp a new consultant is 118 days down from 126 business days last year which
translates (at $150 per hour) to a cost of $141,600. Obviously, reducing the time and cost of finding and
ramping new employees has a major impact on growth and profitability. Interviews with this years best
of the best revealed innovative college hiring and ramping programs with intense on-boarding
programs of three months or more to ensure new consultants are successful and productive. The need
for training has resulted in a big increase in the days of guaranteed training moving from 3.8 days in
2008 to over 8.9 days on average in 2015. PS organizations of all types and sizes have found they simply
cannot steal enough experienced consultants from their competitors to support their growth.
At the same time, PS organizations are finally starting to realize the importance of providing employee
career opportunities this has led to a slight improvement in the benchmark of a well-understood
career path, which has advanced from a score of 2.67 out of 5 (53%) in 2009 to 3.29 (66%) in 2015. In
2015 average billable utilization decreased slightly from 71% to 70.6% yet in response to another
question, reported average annual billable hours edged up slightly from 1,431 to 1,440.
Table 84 shows the human capital alignment scores by organization size. Attrition tends to rise in direct
proportion to organization size as employees feel less ownership and their work becomes more
impersonal. As organizations grow in size, the percentage of employees who would recommend their
company as a great place to work also declines. This important metric has declined across the entire PS
industry every year since 2012 from 4.29 out of 5 (85.8%) in 2012 to 4.19 (83.8%) in 2015. Employee to
management ratios increase with the size of the organization due to economies of scale and
investments in systems and tools which improve management visibility. The time to recruit new
consultants is highest for the largest firms (65.7 days) but they offset their long recruiting time with
better and faster ramping programs, bringing new hires up to speed in 52.2 days. All organizations need
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
4.8%
6.8%
7.6%
8.9%
8.4%
9.2%
3.4%
4.1%
5.4%
5.2%
6.3%
6.3%
4.15
4.32
4.28
4.18
3.98
4.08
9.22
8.43
10.70
12.20
13.10
16.34
56.3
63.8
59.5
58.7
59.1
65.7
62.9
64.6
58.6
57.2
48.9
52.2
7.36
7.59
8.76
8.49
9.47
12.43
3.10
3.30
3.29
3.23
3.32
3.49
68.0%
69.7%
70.7%
70.3%
72.4%
72.6%
Tables 85 and 86 show key Human Capital Alignment metrics by market. Embedded Software PS
reported the poorest human capital alignment scores across most dimensions which may contribute to
the longest times to recruit and ramp new consultants. However, Software PSOs offer the most training.
Billable utilization is highest for staffing firms at 76.6%, followed by Managed Service providers at 74.2%.
Architects and engineers provide the fewest guaranteed training days at 5.83. Voluntary and involuntary
attrition is highest for research and development organizations at 19.2% followed by IT consultancies at
14%. Accounting firms reported the lowest overall attrition at 9%.
Table 85: Human Capital Alignment by Vertical Service Market
IT
Consult.
Software
Mgmt.
Consult.
8.7%
7.5%
8.3%
5.6%
7.0%
7.4%
5.9%
5.3%
6.1%
3.1%
4.7%
4.4%
4.8%
3.9%
4.26
4.07
4.27
4.42
4.12
4.00
4.00
12.90
12.14
9.10
10.73
10.38
11.43
12.31
56.1
70.5
63.9
58.4
60.8
58.9
53.6
53.9
73.4
48.2
54.4
73.1
49.6
46.1
8.88
10.39
8.84
5.83
9.34
10.00
8.75
3.39
3.08
3.45
3.34
3.17
3.20
3.29
71.4%
68.0%
70.9%
73.3%
67.9%
74.2%
69.6%
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
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R&D
VAR
Acct.
Advert.
(Marcom)
Staff.
Other PS
10.0%
5.0%
4.5%
9.0%
6.5%
9.5%
9.2%
7.0%
4.5%
4.1%
7.6%
4.5%
3.57
4.43
3.77
4.36
4.11
4.31
13.21
9.29
10.38
7.73
11.88
11.15
57.9
52.5
58.8
55.9
60.0
72.7
45.0
56.8
72.5
45.0
42.9
68.8
9.29
9.82
10.63
7.95
8.13
7.71
3.31
3.50
3.00
2.91
2.88
3.31
71.4%
67.5%
71.7%
71.8%
75.6%
66.7%
SPI Research asked questions about the age and gender of the global PS workforce. PS is a young mans
game with 60.8% of the workforce under 40 while 63.6% of the workforce is male. This year the
percentage of employees under 30 increased from 20.7% to 24.4% while over 50 employees declined
from 18.2% to 15.1%. Embedded PSOs reported slightly younger workforces as they tend to provide
better on-boarding programs than their independent counterparts and require the latest technical skills.
EMEA has the oldest workforce with the most employees over 40 (40.6%). EMEA and APac are the most
male-dominated with 66.7% male PS employees. The percentage of females has increased each year
with the Americas leading the way in bringing women into the PS workforce with 37.9% females.
Table 87: Workforce Age and Gender by Organization Type and Geographic Region
Workforce Age (years)
2015
ESO
PSO
Americas
EMEA
APac
Under 30
24.4%
25.3%
24.0%
25.3%
21.6%
25.4%
30 - 40
36.4%
39.1%
35.1%
35.9%
37.8%
35.9%
40 - 50
24.1%
24.4%
24.0%
23.9%
25.6%
21.3%
Over 50
15.1%
11.1%
17.0%
15.0%
15.0%
17.3%
38.4
37.4
38.8
38.2
38.8
38.5
63.6%
64.9%
63.0%
62.1%
66.7%
67.1%
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
Under 30
10.3%
25.1%
23.0%
26.1%
29.7%
30.3%
30 - 40
39.2%
37.2%
37.6%
35.9%
39.0%
29.9%
40 - 50
17.3%
22.9%
26.1%
25.8%
22.0%
25.2%
Over 50
33.2%
14.8%
13.4%
12.1%
9.3%
14.6%
43.2
38.1
38.3
37.7
36.3
37.8
68.6%
66.1%
62.0%
63.5%
63.5%
60.2%
The largest firms employ the most employees under 30 at 30.3%. They also employ the most females at
39.8%. Large firms are an excellent choice for young consultants as they provide ample training and
career growth options but may also require excessive travel and work hours leading to burnout.
Table 89 shows marketing and advertising has the youngest workforce with 40.7% of employees under
30. Marketing and advertising is the only PS sub-vertical that is female-dominated with 57.7% of the
workforce reported to be female. Marketing and advertising firms reported that only 4% of the
workforce is over 50. Architects and engineers are the most male-dominated sub-vertical with 69.2%
male employees closely followed by software companies with 68.4% male PS employees. Management
consultancies employ the oldest workforce with an average workforce age of 42.2 years; this makes
sense as grey-hair and experience are virtues when it comes to management consulting strategies,
depth of vertical industry knowledge and operational improvement skills. Management consulting and
staffing firms employ the most employees over 50 with 29.1% and 23.5% respectively. SaaS
organizations favor younger workers, with a low percentage of employees over 50 (8.1%), but they do a
slightly better job than enterprise software ESOs of hiring females (41.4%).
Table 89: Workforce Age and Gender by Vertical Service Market
IT Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd. Serv.
Hard. &
Netwrk.
Under 30
25.7%
25.2%
17.7%
20.1%
33.8%
20.7%
22.6%
30 - 40
36.1%
39.1%
29.1%
36.5%
39.9%
42.7%
31.6%
40 - 50
24.5%
24.2%
24.1%
25.3%
18.2%
25.7%
28.9%
Over 50
13.8%
11.4%
29.1%
18.2%
8.1%
10.9%
16.9%
38.0
37.5
42.2
39.6
35.3
37.9
39.4
65.3%
68.4%
59.9%
69.2%
58.6%
65.0%
63.2%
Role
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R&D
VAR
Acct.
Advert.
(Marcom)
Staff.
Other PS
Under 30
24.1%
10.4%
27.9%
40.7%
34.4%
21.2%
30 - 40
38.1%
41.5%
45.0%
36.0%
27.9%
35.8%
40 - 50
24.6%
36.4%
19.3%
19.3%
14.3%
25.4%
Over 50
13.1%
11.7%
7.8%
4.0%
23.5%
17.7%
38.0
40.2
35.9
33.8
38.3
39.4
58.3%
61.4%
53.5%
42.3%
58.8%
59.2%
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Organizational Structure
Figure 49 depicts organization structure with
functional predominant. This means most PSOs
have defined functions for sales and marketing,
project delivery, finance and operations, service
engineering, human resources, etc. The second
most prevalent structure is line of business or
product-oriented meaning groups are organized
by vertical industries or products. Matrixoriented structures are favored, particularly by
larger organizations which may have double-line
2016 Service Performance Insight
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129
%
Surveys
Revenue
Growth
Bid-towin ratio
Billable
Utilization
Revenue /
emp. (k)
1 - No
1.1%
6.7%
1.90
68.0%
$100
5.9%
4.4%
4.32
62.6%
148
10.3%
7.7%
4.13
69.0%
169
37.7%
11.0%
4.98
70.7%
156
5 - Yes
45.0%
10.9%
5.23
72.0%
157
100.0%
10.2%
4.93
70.6%
$157
Tot/Avg.
Management-to-Employee Ratio
The management-to-employee ratio divides the number of employees by the number of people
managers. Management-to-employee ratio (also referred to as span of control) is an important
measurement of management effectiveness and is an indication of lean or excessive management
overhead. The average management-to-employee ratio rose to 1 to 11.52 this year after a steep decline
to 1 to 8.9 in 2010 during the depths of the recession suggesting firms laid off proportionately more
individual contributors than managers.
With a significant upturn in business, firms are starting to hire again and are finding the burden of
recruiting and ramping new employees is putting tremendous pressure on already stretched managers.
Few small and medium-size firms have effective management training programs so we are seeing a
significant number of battle-field promotions without the requisite support structure. The Best-ofthe-Best organizations are starting to add a team leader position to groom the next generation of
leaders.
SPI Research found Table 94
interesting because it shows the
effect of management to employee
ratios. It appears that a larger
management span of control has a
beneficial effect on performance.
Of course this implies that
employees clearly understand the
work they are asked to perform
and have a rich support structure
of mentors, tools and knowledge to
guide them so they dont have to
rely solely on management for
direction.
2016 Service Performance Insight
Survey
Percent
Billable
Utilization
On-time
delivery
EBITDA
1:5
27.9%
69.3%
75.3%
14.1%
1:10
40.7%
68.9%
76.2%
13.7%
1:15
16.0%
72.3%
76.3%
20.2%
1:20
9.6%
75.4%
76.5%
20.5%
Over 1:20
5.8%
75.3%
76.8%
14.9%
100.0%
70.6%
76.1%
15.6%
Total/Average
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Billable
Util.
Rev. /
Employee
(k)
Under 1 month
27.8%
75.1%
$150
9.6
30 - 60 days
30.7%
69.8%
163
10.5
60 - 90 days
23.3%
69.6%
165
10.6
90 - 120 days
10.8%
66.8%
152
9.7
7.4%
66.6%
158
12.5
Total/Average
100.0%
70.6%
$158
10.3
Time to become
productive
Staffing
Time
(days)
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133
Survey
Percent
Revenue
Growth
Client
Ref.
Billable
Utilization
Revenue /
billable
cons. (k)
Revenue /
employee
Voluntary
Attrition
EBITDA
Under 50%
6.0%
8.6%
61.0%
69.0%
$171
$133
6.6%
6.0%
50% - 60%
12.4%
10.5%
65.0%
70.6%
185
147
9.6%
13.2%
60% - 70%
24.3%
10.2%
71.4%
75.8%
197
157
7.8%
16.7%
70% - 80%
35.7%
11.2%
73.7%
76.9%
210
170
7.1%
16.6%
80% - 90%
17.6%
8.6%
70.5%
79.5%
195
156
7.5%
13.6%
Over 90%
4.1%
9.0%
74.0%
83.8%
192
134
11.3%
15.9%
100.0%
10.2%
70.7%
76.1%
$198
$158
7.8%
15.0%
Total/Average
Although PS firms would like to abandon the billable utilization metric (and all the accompanying time
tracking it entails), unfortunately there is no other metric which provides as good a picture of workforce
productivity. Perhaps as more and more firms shift to fixed price work the focus on billable utilization
will decline but if this is the case firms will have to ratchet up their focus on project accounting and
budget to actual performance. But here again, how can budget to actual performance be measured
without tracking work hours?
Billable Utilization from the 2015 PS Global Pricing Report
Based on the 2015 PS Global Pricing report, Table 100 provides a snapshot comparison by role of the
2015 PS Pricing survey compared to the 2011 survey. The headline reads lower bill rates are offset
by significantly higher billable utilization targets resulting in significant increases in consulting
revenue yields and profits. What this means is that the consulting industry is demanding more from
their workforces to offset rate erosion. These productivity advances are a direct result of more virtual
(off-site) consulting delivery, stronger consulting demand (more work) and productivity tools (less
time spent on non-billable activities). The question which must be asked is can the consulting
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2015
Target
Revenue
Yield PP (k)
Target
Revenue
Yield
Delta (k)
$235
$166
($31)
785
213
167
152
879
176
155
167
202
1,368
174
238
36
1,289
166
214
1,472
177
260
46
Project Manager
1,272
153
195
1,505
164
246
51
1,113
217
242
1,450
196
284
42
1,298
193
251
1,519
169
256
Business Consultant
1,330
152
202
1,512
149
225
23
Solution Architect
1,316
185
243
1,391
178
248
1,374
166
228
1,563
168
263
35
Technical Consultant
1,401
151
212
1,566
146
228
16
Non-weighted average
1,249
$177
$214
1,353
$175
$237
$23
Target
Annual
Billable
Hrs.
Target
Annual
Billable
Hrs.
Realized
Hourly
Bill rate
Realized
Hourly
Bill rate
VP / Executive Management
743
$265
$197
706
Director
771
217
167
Manager
852
178
Program Manager
1,211
Level
Target
Revenue
Yield PP (k)
Target annual billable hours have increased dramatically for all job categories except Executive
Management. Target annual hours across all roles and geographies have increased from 1,249
in 2011 to 1,353 hours in 2015! The average PS consultant is targeted to bill almost 200 more
hours per year! Most consulting job roles are now targeted at 75% billable utilization or higher.
The only job category which has not experienced a decline in realized bill rates is the Project
Management job category. At the same time, project managers are being asked to bill more
hours. The combined impact of slightly higher rates and significantly higher utilization targets
manifests in the greatest increase in per capita target revenue. A contributing factor to these
increases is that the project management category has experienced the most significant decline
in employee numbers as a percent of the overall consulting workforce. This means the
remaining project managers are being asked to do more and scarcity has led to higher rates.
The Business Consulting job category has experienced the steepest decline in realized bill rates
at the same time this job category has experienced a sharp increase in billable utilization
targets. The increase in billability has more than offset the decrease in rates, making the
business consulting job category the richest revenue producers in the study.
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The Technical Consulting job category has experienced a moderate decline in realized rates and
a moderate increase in annual billable targets. The net result manifests in moderately increased
revenue targets.
In the technical consulting job category, only senior technical consultants have experienced a
slight increase in realized bill rates from $166 to $168 per hour. However, their billable
utilization targets have soared from 1,374 hours in 2011 to 1,563 hours in 2015. The net result
is they are targeted to generated $263K in annual revenue, up from $228K in 2011!
Table 101 shows a comparison of target billable hours by role for the major geographies represented in
the 2015 PS Pricing study. India clearly expects the most from its consultants with annual target hours
of 92% for its program managers; 82.5% for its senior business consultants and 86% for its technical
consultants. EMEA targets the fewest billable hours.
Table 101: Target Billable Hours by Geography
Target Billable Hours
Role
Mgmt.
Project
Mgmt.
Business
Consulting
Technical
Consulting
Level
North
Amer.
West.
Europe
VP / Executive Mgmt.
658
407
460
758
32.9%
Director
827
636
679
975
Manager
979
883
700
Program Manager
1,403
1,439
1,500
Project Manager
ANZ
India
North
Amer.
West.
Europe
ANZ
India
20.3%
23.0%
37.9%
41.4%
31.8%
34.0%
48.8%
672
49.0%
44.2%
35.0%
33.6%
1,099
1,841
70.2%
72.0%
55.0%
92.1%
1,379
1,384
1,700
75.0%
69.0%
69.2%
85.0%
1,525
1,469
1,466
1,688
76.3%
73.5%
73.3%
84.4%
1,476
1,225
1,317
1,424
73.8%
61.3%
65.9%
71.2%
1,515
1,456
1,487
1,650
75.7%
72.8%
74.3%
82.5%
Business Consultant
1,548
1,475
1,221
1,516
77.4%
73.7%
61.1%
75.8%
Solution Architect
1,421
1,351
1,127
1,680
71.0%
67.5%
56.3%
84.0%
1,586
1,480
1,530
1,775
79.3%
74.0%
76.5%
88.8%
Technical Consultant
1,605
1,431
1,499
1,713
80.2%
71.6%
75.0%
85.6%
Annual Hours
Always one of the most anticipated metrics from the annual PS Maturity benchmark survey is the
breakdown of work hours. Most organizations put a lot of focus on consultant time spent on both
billable and non-billable tasks. Embedded organizations reported a 2.5% increase in billable hours from
1,317 to 1,350 while independents reported a slight decrease in billable hours from 1,488 to 1,481.
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Survey
2014
2015
ESO
PSO
Change
2014
2015
Change
2014
2015
Change
176
169
-4.0%
188
157
-16.5%
169
175
3.6%
72
77
6.9%
84
94
11.9%
65
69
6.2%
Administrative
180
171
-5.0%
213
187
-12.2%
164
164
0.0%
233
213
-8.6%
313
269
-14.1%
194
186
-4.1%
1,431
1,439
0.6%
1,317
1,350
2.5%
1,488
1,481
-0.5%
811
803
-1.0%
696
622
-10.6%
868
887
2.2%
620
637
2.7%
620
729
17.6%
620
594
-4.2%
2,092
2,069
-1.1%
2,115
2,058
-2.7%
2,080
2,075
-0.2%
Education/training
Total Hours
Table 102 provides a year-over-year comparison of annual work hours by comparing embedded to
independent organizations. The trend in total annual hours this year was very positive with fewer hours
spent on administration and non-billable project hours contributing to fewer total hours worked with
approximately the same number of billable hours (1,439). ESOs reduced non-billable vacation,
administration and non-billable project hours but increased training time from 84 to 94 hours.
Independents increased vacation and education time but decreased non-billable project hours.
Independent consultants billed 131 more hours (16 more days) than their embedded counterparts!
Table 103: Annual Hour Comparison by Region
Annual Hours
Vacation/personal/holiday
Americas
2014
2015
EMEA
APac
Change
2014
2015
Change
2014
2015
Change
160
150
-6.3%
222
219
-1.4%
196
176
-10.2%
67
74
10.4%
86
80
-7.0%
76
87
14.5%
Administrative
173
181
4.6%
210
136
-35.2%
170
206
21.2%
242
219
-9.5%
201
198
-1.5%
237
211
-11.0%
1,457
1,450
-0.5%
1,327
1,415
6.6%
1,458
1,427
-2.1%
801
740
-7.6%
821
922
12.3%
869
982
13.0%
655
710
8.4%
506
493
-2.6%
589
445
-24.4%
2,099
2,073
-1.2%
2,046
2,048
0.1%
2,136
2,108
-1.3%
Education/training
Total Hours
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Under 10
2014
2015
10 - 30
31 - 100
Change
2014
2015
Change
2014
2015
Change
141
158
12.1%
181
175
-3.3%
180
177
-1.7%
72
51
-29.2%
80
57
-28.8%
60
87
45.0%
Administrative
201
190
-5.5%
160
152
-5.0%
197
177
-10.2%
234
261
11.5%
261
262
0.4%
263
213
-19.0%
1,356
1,361
0.4%
1,396
1,415
1.4%
1,401
1,430
2.1%
548
726
32.5%
770
786
2.1%
762
769
0.9%
807
634
-21.4%
626
629
0.5%
639
661
3.4%
2,003
2,022
0.9%
2,079
2,060
-0.9%
2,102
2,083
-0.9%
Education/training
Total Hours
Table 105: Annual Hour Comparison by Organization Size (> 100 employees)
Annual Hours
Vacation/personal/holiday
101 - 300
2014
2015
301 700
Over 700
Change
2014
2015
Change
2014
2015
Change
163
163
0.0%
198
157
-20.7%
181
169
-6.6%
62
73
17.7%
86
75
-12.8%
113
104
-8.0%
Administrative
153
155
1.3%
229
173
-24.5%
132
200
51.5%
197
174
-11.7%
187
173
-7.5%
160
212
32.5%
1,537
1,477
-3.9%
1,415
1,515
7.1%
1,514
1,429
-5.6%
985
813
-17.5%
835
996
19.3%
995
805
-19.1%
552
664
20.3%
581
520
-10.5%
520
624
20.0%
2,112
2,042
-3.3%
2,116
2,094
-1.0%
2,100
2,114
0.7%
Education/training
Total Hours
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Software PS
2014
2015
SaaS PS
Hardware/Network PS
Change
2014
2015
Change
2014
2015
Change
209
160
-23.4%
128
155
21.1%
207
146
-29.5%
86
91
5.8%
85
90
5.9%
93
150
61.3%
Administrative
208
182
-12.5%
215
175
-18.6%
228
346
51.8%
293
290
-1.0%
367
299
-18.5%
263
127
-51.7%
1,320
1,336
1.2%
1,313
1,351
2.9%
1,280
1,320
3.1%
716
638
-10.9%
732
323
-55.9%
635
1,013
59.5%
604
698
15.6%
581
1,028
76.9%
645
308
-52.2%
2,117
2,058
-2.8%
2,107
2,069
-1.8%
2,070
2,089
0.9%
Education/training
Total Hours
As shown in Tables 107, 108 and 109, IT consultants billed the most hours (1,521) while other PS billed
the least (1,132). Management consultants spend the most time working on-site (993 hours) while SaaS
PS spends the least (323). Independents reported an average decrease of 7 billable hours per consultant
(1,481) compared to (1,488) in 2014 and 1,457 in 2013.
Table 107: Annual Hour Comparison by PS Market (IT & Management Consulting, Staffing)
Annual Hours
Vacation/personal/holiday
IT Consulting
2014
2015
Management Consulting
Change
2014
2015
Change
Staffing
2014
2015
Change
176
166
-5.7%
145
176
21.4%
N/A
214
N/A
66
69
4.5%
52
69
32.7%
N/A
116
N/A
Administrative
143
162
13.3%
217
146
-32.7%
N/A
202
N/A
176
170
-3.4%
190
216
13.7%
N/A
94
N/A
1,513
1,521
0.5%
1,454
1,475
1.4%
N/A
1,457
N/A
Education/training
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948
860
-9.3%
657
993
51.1%
N/A
831
N/A
565
662
17.2%
797
481
-39.6%
N/A
626
N/A
2,073
2,088
0.7%
2,058
2,082
1.2%
N/A
2,083
N/A
Total Hours
Table 107 shows IT consultancies average 1,521 hours per consultant compared to 1,454 hours for
management consultants. Unfortunately, their high levels of billability are more than offset by their low
rate structure. According to the 2015 Global PS Pricing report the average management consulting rate
is $197/hour while the average IT Consulting rate is only $163/hour for billable consultants.
Table 108: Annual Hour Comparison by PS Market (Advertising, Arch./Engr., Other PS)
Annual Hours
Vacation/personal/holiday
Advertising
2014
2015
Architecture/Engineering
Change
2014
2015
Change
Other PS
2014
2015
Change
168
141
-16.1%
173
175
1.2%
162
227
40.1%
98
101
3.1%
65
44
-32.3%
69
60
-13.0%
Administrative
135
202
49.6%
157
138
-12.1%
201
293
45.8%
196
385
96.4%
201
155
-22.9%
284
270
-4.9%
1,520
1,192
-21.6%
1,486
1,514
1.9%
1,415
1,132
-20.0%
903
303
-66.4%
822
858
4.4%
747
680
-9.0%
617
889
44.1%
664
656
-1.2%
668
452
-32.3%
2,117
2,022
-4.5%
2,082
2,025
-2.7%
2,132
1,982
-7.0%
Education/training
Total Hours
Accounting
2014
2015
Value-added Reseller
Change
2014
2015
Change
2014
2015
Change
Vacation/personal/holiday
N/A
198
N/A
N/A
207
N/A
N/A
147
N/A
Education/training
N/A
55
N/A
N/A
130
N/A
N/A
87
N/A
Administrative
N/A
126
N/A
N/A
221
N/A
N/A
148
N/A
N/A
294
N/A
N/A
110
N/A
N/A
242
N/A
N/A
1,373
N/A
N/A
1,560
N/A
N/A
1,385
N/A
N/A
1,218
N/A
N/A
1,333
N/A
N/A
648
N/A
N/A
154
N/A
N/A
228
N/A
N/A
738
N/A
Total Hours
N/A
2,046
N/A
N/A
2,228
N/A
N/A
2,008
N/A
Table 108 shows marketing and communication consultants reported significantly lower billable hours
this year (1,192) while architects reported slightly more billable hours this year (1,514) than last year.
Architects and engineers reported the steepest decline in administrative time (-12.1%) and non-billable
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2014
2015
ESO
PSO
Headquarters
50.5%
53.1%
41.6%
57.9%
49.0%
66.1%
45.5%
Branch offices
20.8%
19.5%
27.0%
16.5%
19.2%
15.9%
35.8%
Home based
23.2%
21.6%
26.4%
19.7%
26.3%
11.6%
14.6%
5.6%
5.7%
5.0%
6.0%
5.6%
6.3%
4.2%
7.6%
4.8%
5.7%
4.8%
6.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Americas
EMEA
APac
Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
Headquarters
67.9%
56.0%
53.6%
50.9%
36.6%
35.9%
Branch offices
1.8%
12.6%
19.9%
26.3%
33.1%
35.3%
Home based
27.6%
26.4%
23.0%
14.5%
20.4%
14.9%
2.7%
5.0%
3.5%
8.3%
9.9%
13.9%
2014 Offshore/Nearshore
0.0%
1.4%
5.0%
10.8%
7.7%
13.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Total
Table 111 shows the use of offshore workers increases with organization size while the percentage of
home-based workers declines. Large organizations are becoming increasingly comfortable with virtual
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Software
Mgmt.
Consult.
Headquarters
52.8%
35.6%
55.4%
Branch offices
16.9%
27.1%
Home based
22.1%
Employee Location
Off /Nearshore
Total
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
77.2%
52.6%
64.4%
29.5%
13.2%
15.8%
27.1%
8.3%
49.0%
29.9%
24.8%
5.1%
17.8%
25.9%
20.0%
8.2%
7.4%
6.5%
1.9%
2.6%
1.4%
1.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Table 113 shows Research and Development and Accountancies reported the use of no offshore
workers. Almost one-third of VAR and Marketing and Advertising employees work from home.
Table 113: Workforce Location by Service Market Vertical
Employee Location
Advert.
(Marcom)
R&D
VAR
Acct.
Headquarters
41.5%
44.6%
57.8%
49.9%
58.2%
76.4%
Branch offices
36.4%
22.0%
33.3%
13.1%
19.2%
3.3%
Home based
22.1%
31.3%
8.9%
31.8%
17.6%
20.3%
0.0%
2.1%
0.0%
5.2%
5.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Off /Nearshore
Total
Staff.
Other PS
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Service Execution
Table 114: Service Execution Performance Pillar Mapped Against Service Maturity
Level 1
Initiated
Level 2
Piloted
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
No scheduling.
Reactive. Ad hoc.
Heroic. Scheduling by
spreadsheet. No
consistent project
delivery methods. No
project quality controls
or knowledge
management.
Skeleton methodology
in place. Centralized
resource mgmt.
Initiating project mgmt.
and technical skills.
Starting to measure
project satisfaction
and harvest
knowledge.
Integrated solutions.
Continual checks and
balances to assure
superior utilization and
bill rates. Complete
visibility to global
project quality. Multidisciplinary resource
management.
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The power of modern PSA solutions is that they provide workflow, rules, alerts and reporting that mimic
best practices in business management. Decades ago services businesses had few viable options as they
were forced to build their own, or substantially customize manufacturing-oriented applications, to
handle projects and resources. Now, PSA solutions provide modules that support essential business
processes, including the critical quote-to-cash process (Figure 52).
Figure 52: Primary business processes cross multiple departments
PSA solutions are designed to integrate core business processes across the organization so that each
department has a clear understanding of their specific goals and measurements and how they ultimately
impact the organizations ability to succeed. Success can be defined in many terms, such as growth,
profit, quality, streamlined operations or reduced administration and rework. Regardless, when
everyone works with the same set of information and is focused on the critical path to quality
completion of project-based work, results tend to improve.
The most important reason why project- and services-based organizations purchase integrated PSA
solutions is their ability to support and streamline business processes across the entire organization.
No longer can solutions only provide visibility into specific functions. Now, as each department adds
value, the business processes that enable success must be mirrored in the PSA solution. The following
sections highlight two of the most critical business processes within project- and services-based
organizations: 1) quote-to-cash, and 2) resource management.
Quote-to-cash business processes
In todays economy, cash flow rules. Every organization must focus on cash flow to maintain a solid
financial position and maximize profitability and liquidity. In service-oriented organizations this process
begins with a client quote and ends once payment is received and the money is in the bank. This macro
process of converting sales opportunities into paying customers is often referred to as quote-to-cash,
and its optimization is essential for financial well-being.
Figure 53 shows quote-to-cash is a series of interrelated processes supported by client relationship
management (CRM), PSA and enterprise resource planning (ERP) modules. To optimize these
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Client demand impacts utilization. PSOs are being asked to demonstrate the value they deliver faster
and more explicitly. Each year, clients are less willing to accept time and materials contracts and are
shifting more risk and greater accountability for success to their suppliers through fixed-price,
deliverables-based and shared-risk contracts. This demand increases administrative effort and reduces
billable hours, as consultants must spend more time in presales, "proof of concepts" and documentation
to prove the worthiness of their services.
To ensure projects deliver client value within budget requirements, clients are starting to segment
projects into shorter and faster phases, which they can monitor more closely, using agile tools and
earned value analysis. Clients also demand the ability to cancel at a moment's notice if the project fails
to fulfill expectations.
In response, most Professional Service Automation suppliers now provide rich customer and partner
portals so clients can actively manage and view the status of projects and deliverables. Partners are
given access to vendor-supplied portals containing methods, tools, best practices and development
environments so they too can enhance time-to-value. Subcontractors have their own resource
management portal so they can manage their availability, skill profiles and project preferences.
Given market growth and an increasing talent shortage, effective resource management has become
critical as the supply of qualified consultants is outstripped by the demand for services. Improving and
maintaining high levels of billable utilization is a constant challenge requiring a delicate balance between
supply and demand.
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Sales Pipeline: Integration of the sales project pipeline with resource requirements and
availability.
Resource Management: The process for scheduling and deploying resources. Resource
management can be centralized or decentralized.
Functional Interlock: Alignment between the sales project pipeline, the resource management
process, the recruiting process, the human resource onboarding and skill development process
and the resources themselves.
Human Resource Processes: Recruiting, onboarding, ramping, and resource skill development.
Resources: The consultants and contractors available to deliver projects and engagements.
Consulting Resources
Functional
Interlock
Sales Pipeline
Service Execution
Level 2
Piloted
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
No scheduling.
Reactive. Ad hoc.
Heroic. Scheduling
by spreadsheet. No
consistent project
delivery methods.
No project quality
controls or
knowledge
management.
Skeleton methodology in
place. Beginning to
centralize resource mgmt.
Initiating project mgmt.
discipline. Starting to
measure project
satisfaction and harvest
knowledge.
Integrated solutions.
Continual checks and
balances to ensure
superior utilization and bill
rates. Complete visibility to
global project quality.
Multi-disciplinary resource
management.
Reactive resource
brokering and
bartering. Sales
picks and commits
resource favorites.
Time-consuming
manual scheduling.
Centralized resource
management function
handles the majority of
resource requests and
schedules. At least manual
integration between CRM
and PSA.
Centralized resource
management function
handles resource requests
and schedules. Integrated
with HR for recruiting and
resource skill development.
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Survey
Percent.
Annual Revenue
Growth
Revenue Per
Project (k)
Employee Billable
Utilization
On-time
Delivery
EBITDA
Centrally Managed
55.0%
10.8%
$212
70.9%
77.0%
15.1%
Locally Managed
21.1%
9.3%
$170
69.1%
73.5%
15.9%
By Account
8.6%
7.7%
$280
70.3%
75.6%
11.8%
8.2%
9.0%
$231
71.5%
77.2%
11.2%
Center of Excellence
4.8%
12.9%
$415
72.9%
75.8%
23.8%
Other
2.3%
8.5%
$423
70.4%
73.2%
35.0%
Total / Average
100.0%
10.1%
70.6%
76.0%
15.6%
$225
SPIs research shows there may not be "one magic bullet" resourcing strategy that is clearly superior to
all others. The five strategies that follow enable PSOs to manage talent and fulfill client demands.
Although centralized resource management is the most prevalent strategy, each organization must
create a resourcing strategy that works best for their business, with the ultimate goal of increasing
utilization and client and employee satisfaction.
1. Centrally-managed Most resource management pundits favor "centralized" resource
management. It provides superior management visibility into the entire project backlog and level
of skills required both today and in the future. Central control may be best for fast-growing
organizations with large projects but may not produce the highest levels of billable utilization
because a certain amount of churn and resource and client unhappiness can result from
impersonal centralized staffing policies.
2. Local resource management Local resource management is the preferred form of resourcing for
young organizations where the workforce is small enough to foster real esprit de corps, and
employees wear many hats. Smaller organizations can't afford the overhead of a dedicated
resource management function, as relationships and roles are fluid, requiring more local control
and finesse.
3. By horizontal skill sets Managing resources by horizontal skill set is useful for developing best
practices, repeatable processes and shared knowledge. For example, many firms have project and
program managers report directly or indirectly to the PMO. By building affinity around "birds of a
feather," project managers or specialized consultants can more easily share best practices and
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Professional Services Automation provides the systems basis for initiation, planning, resource
management, scheduling, execution, close and control of projects and services. PSA provides a resource
and project dashboard including the demand forecast. It helps manage service delivery by overseeing
opportunities, staffing, project management, and collaboration. PSA is typically the system of record for
resource skills, competencies and preferences with integration to the employee and contractor
database. It is used to collect time and expense by project and resource down to the task level so it is
the system of record for resource utilization and project cost and estimating. Most PSA applications
now offer billing modules with some level of revenue recognition by type of billing method time and
materials, work in process or fixed price. They also support accurate time and expense capture. PSA
extensions for the construction industry include modules for material costs and procurement.
Core modules
PSA vendors segment their products into application modules that emphasize the management of costs,
clients and resources:
Engagement Management: The management and control of the overall set of project
deliverables.
Project Management: The initiation, planning, execution, close and control of projects.
Project Accounting: The tracking of project-related costs to determine budget to actual costs
and profitability.
Time and Expense Management: The capture and tracking of project-related time and expense
information.
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Social: The ability to easily incorporate social channel information from LinkedIn, Facebook,
Twitter, etc. along with social collaboration to facilitate knowledge sharing.
Revenue Management: PSA solutions provide deferred revenue and work in progress tracking
and revenue reporting to automate revenue reporting for time and materials, fixed bid,
milestone-based and term engagements.
PSA Benefits
Each year SPI Researchs Professional Services Maturity benchmark quantifies the benefits achieved
by services organizations with solutions that integrate Client Relationship Management and financial
processes, Human Capital Management and financial processes, and Professional Services Automation
and financial processes. Of course, the systems themselves are only part of a broader firm-wide
commitment to behavioral change that fosters collaboration and enhanced communication,
coordination and quality management.
When it comes to PSA software, project- and services-based organizations now have a range of
attractive choices systems that are designed to support the needs of the always-on, virtual, mobile
service economy by providing a number of key benefits:
Costs and deliverables reside in the same place so productivity can be measured, analyzed and
improved at the territory, account, project and individual resource level.
Reporting and analytics are embedded within the application, alerting decision-makers to issues
before they become problems.
A more seamless audit trail to better identify success and failure points.
Enhanced support for global operations with multicurrency, multilingual applications, which
conform to local regulations and taxes.
Lower administration costs due to fewer manual, error-prone spreadsheets and costly data reentry.
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No PSA
Used
71.3%
67.3%
6%
11.2%
6.3%
78%
5.94
5.23
14%
76.4%
74.3%
3%
Survey Results
The following section reviews and analyzes 2016 PS Maturity benchmark results from 549 participating
professional services organizations. In this section SPI Research analyzes 14 Service Execution KPIs that
are critical to attaining superior service delivery performance.
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2011
2012
2013
2014
2015
12.64
12.48
9.48
9.41
10.40
4.18
5.30
5.16
4.23
5.77
3.96
3.73
3.76
4.85
4.70
5.17
5.31
5.15
5.57
6.21
76.5%
78.6%
77.3%
78.3%
76.1%
Projects canceled
2.1%
3.7%
1.9%
1.7%
2.6%
8.3%
9.2%
8.5%
8.9%
10.0%
66.6%
63.6%
65.1%
66.2%
64.6%
3.47
3.53
3.47
3.59
3.60
3.59
3.44
3.49
3.37
3.55
3.38
3.39
3.36
3.26
3.44
3.43
3.45
3.38
3.36
3.58
3.04
2.95
3.04
3.01
3.36
Table 119 shows little difference in the average project staffing times between embedded and
independent service organizations, with most organizations requiring two working weeks to commence
project initiation. Each year the number of projects managed per project manager has inched up from
4.18 in 2011 to 5.77 in 2015. Todays project managers receive more training and PMI/PMP certification
than ever before. At the same time, the nature of projects is shifting towards more configuration, user
interfaces and report design away from the complex, custom mega projects of the past making them
somewhat easier to manage and keep within scope. A host of accelerators, configuration, project and
knowledge management tools have come to market to enhance knowledge sharing and collaboration
while facilitating more natural oversight, guidance and real-time quality reviews to mitigate risks.
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2011
2015
ESO
PSO
Americas
EMEA
APac
12.64
10.40
11.13
10.05
10.46
10.00
11.29
4.18
5.77
6.59
5.39
6.28
4.67
4.82
3.96
4.70
4.64
4.73
4.89
4.19
4.72
5.17
6.21
5.59
6.50
6.22
6.45
5.20
76.5%
76.1%
72.0%
78.0%
76.2%
75.6%
77.0%
Projects canceled
2.1%
2.6%
2.4%
2.7%
2.6%
2.7%
2.2%
8.3%
10.0%
11.2%
9.5%
10.0%
10.2%
9.2%
66.6%
64.6%
65.4%
64.2%
65.7%
61.1%
66.6%
3.47
3.60
3.55
3.62
3.60
3.57
3.69
3.59
3.55
3.52
3.56
3.58
3.42
3.71
3.38
3.44
3.45
3.44
3.45
3.38
3.60
N/A
3.58
3.41
3.66
3.58
3.51
3.83
N/A
3.36
3.30
3.39
3.37
3.32
3.47
Across all types of organizations and geographies the average project staff is 4.7 people. As shown in
Figure 55 project staff size has been inching up since the recession, growing from 3.96 in 2011 to 4.7 in
2015. Project duration has likewise been growing from 5.17 months in 2011 to 6.21 months in 2015.
With economic recovery, project sizes are growing as companies have more time and money to spend
on improving their businesses. In the past five years the average project has grown from 20.5 man
months to 29.2 man months, representing 42% growth. Quite significant!
Unfortunately, while improvements have
been made in the number of projects
concurrently managed by a project
manager and project staff size and
duration have increased, almost no
improvements have been reported in the
number of projects delivered on-time.
This is an important metric which
depends on a host of other processes such
as accurate estimates, clear
requirements, great client communication
and scope control. But the sad reality
exists, in 2011 76.5% of projects were
delivered on-time while only 76.1% were
delivered on-time in 2015. ESOs do a
poorer job of on-time project delivery due
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Unfortunately, over the same five-year time horizon, the magnitude of project overruns has increased
substantially from 8.3% in 2011 to 10% in 2015. The sad fact is the one thing that could improve ontime project delivery and reduce project overruns is not being used. The use of standardized service
delivery methods has actually declined from 66.6% of all projects in 2011 to only 64.6% in 2015. Very
disappointing at a time when the PS industry is undergoing tremendous growth and gaining stature and
global visibility. Just think of the myriad news headlines heralding poor project management and
ineffective service delivery processes mine explosions, gas line leaks, oil spills. All of which could
have been prevented with quality service delivery processes and reviews! Areas of improvement in
service execution have been in resource management, estimating, change control, quality and
knowledge management processes.
Table 120 shows the differences in service execution metrics by size of organization. The smallest
organizations do the best job of on-time project delivery. The largest organizations gave themselves the
best marks for estimating, change control, project quality and knowledge management. They certainly
need these processes as they manage the largest, most risk intense projects.
Table 120: Service Execution KPIs by Organization Size
Key Performance Indicator (KPI)
Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
7.98
8.10
9.98
12.02
10.65
12.84
6.33
5.79
5.52
5.89
5.17
6.12
2.65
3.35
4.09
5.46
5.86
6.98
5.61
5.59
5.94
6.75
6.15
7.10
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
79.1%
76.0%
75.8%
74.6%
76.3%
77.3%
Projects canceled
3.3%
2.6%
1.7%
2.7%
3.4%
3.2%
8.9%
10.3%
10.4%
9.9%
9.9%
10.0%
62.8%
62.9%
68.3%
61.6%
65.4%
65.3%
3.57
3.78
3.54
3.43
3.65
3.77
3.65
3.54
3.51
3.49
3.48
3.71
3.60
3.34
3.28
3.41
3.38
3.91
3.72
3.52
3.43
3.56
3.53
3.92
3.58
3.20
3.22
3.31
3.38
3.77
Table 121 shows service execution metrics by vertical market. Remarkably, most service execution
metrics are very similar across markets. Management consultants do the best job of on-time project
delivery as the majority of their projects are fixed price with clear value-added deliverables. SaaS PSOs
reported the worst on-time project delivery which directly contradicts their claims of No more
software. SaaS PSOs have the greatest opportunity to develop repeatable, packaged services with the
highest use of standardized service delivery methods (72.7%) yet their service execution metrics are
among the poorest. Clearly their thirst for market expansion has sidelined their quest for service
delivery excellence.
Table 121: Service Execution KPIs by Vertical Service Market
Key Performance Indicator (KPI)
IT Cons.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
10.58
11.89
5.19
10.37
8.56
9.53
9.23
11.35
6.89
4.07
7.38
6.90
6.38
6.15
5.08
4.54
4.17
4.13
4.38
5.65
5.54
6.24
5.84
6.55
8.52
5.09
5.88
5.36
77.4%
71.4%
83.6%
76.8%
70.9%
72.7%
76.3%
2.4%
2.7%
2.1%
3.9%
2.1%
2.2%
2.5%
10.0%
12.3%
6.8%
8.9%
11.4%
11.5%
7.1%
67.5%
63.4%
61.6%
65.2%
72.7%
68.5%
50.0%
3.63
3.51
3.77
3.43
3.49
3.93
3.62
3.57
3.40
3.82
3.30
3.51
3.71
3.92
3.49
3.37
3.57
3.15
3.33
3.86
3.50
3.63
3.38
3.85
3.55
3.33
3.71
3.54
3.33
3.16
3.55
3.47
3.49
3.80
3.31
Mgd.
Serv.
Hard. &
Netwrk.
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VAR
12.32
12.32
6.82
5.68
11.56
9.79
4.96
4.35
7.00
5.79
4.63
6.58
6.25
4.29
3.14
5.13
4.94
3.83
6.86
5.36
2.91
4.04
6.39
7.54
70.7%
73.6%
70.5%
80.5%
74.4%
77.1%
3.2%
1.9%
3.3%
2.5%
5.4%
2.7%
11.7%
7.7%
14.8%
8.8%
11.6%
9.2%
47.1%
67.1%
60.9%
64.5%
65.0%
48.3%
3.62
3.57
3.55
3.75
3.44
3.46
3.75
3.64
3.27
3.33
3.22
3.69
3.85
3.79
3.36
3.17
3.00
3.38
3.92
3.36
3.27
3.42
3.33
4.00
3.69
3.07
3.36
3.08
3.22
3.38
Acct.
Advert.
(Marcom)
Staff.
Other PS
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Revenue /
Billable
Emp. (k)
Survey
Percent
Billable
Utilization
1-2
23.5%
68.0%
$175
$150
3-5
49.3%
70.7%
209
161
6-8
17.7%
71.4%
200
157
9 - 11
4.9%
76.0%
164
140
Over 11
4.7%
74.6%
219
181
100.0%
70.6%
$198
$157
Total/Average
Revenue /
Emp. (k)
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Billable
Utilization
On-time
project
delivery
Revenue per
billable
consult. (k)
7.0%
65.4%
75.4%
$171
1-3
17.2%
67.8%
79.0%
184
3-6
31.1%
68.7%
74.4%
199
6-9
23.4%
72.4%
75.3%
212
9 - 12
11.5%
74.4%
75.8%
194
9.8%
76.2%
78.5%
207
100.0%
70.6%
76.0%
$198
Under 1
Over 12
Total/Average
Survey
Percent
Table 125 shows 55% of project are six months or less in duration while 45% are longer than 6 months.
Obviously, revenue per project increases as the duration increases, and billable utilization also rises as
the duration increases. Interestingly, project duration does not seem to impact on-time project delivery
as both the shortest and longest duration projects reported the best on-time project delivery.
On-time Project Delivery
The percentage of projects delivered on time is a measurement that divides the number of projects
completed on-time by the total number of projects. This KPI is critical for billable service organizations,
because when it decreases, both profitability and client satisfaction decline. Unfortunately, on-time
project delivery rates tend to be less than 80% on average for PSOs.
In 2015 the percentage of projects delivered on-time declined to the lowest level in five years (76.1%).
Independents do a much better job of on-time project delivery (78%) than embedded PSOs (72%). Ontime delivery is an extremely important key performance indicator because it impacts both client
2016 Service Performance Insight
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Project Cancellation
The project cancellation rate represents the number of projects canceled divided by total projects. In
billable professional services organizations, the project cancellation rate is typically quite low when
compared to internal IT organizations. However, it is important because if projects are canceled the
organization must scramble to reallocate resources to keep utilization rates high, not to mention strive
to improve the damaged client relationship.
As we have seen throughout the 2016 PS Maturity benchmark, project cancellation rates have risen
precipitously.
2016 Service Performance Insight
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Project
Margin
Annual Rev.
per
employee (k)
Annual Rev.
per employee
(k)
None
17.5%
34.5%
$198
$151
0% - 1%
23.3%
34.7%
211
170
1% - 2%
19.5%
34.5%
207
161
2% - 5%
22.9%
33.5%
195
157
5% - 7%
9.0%
32.1%
189
151
7% - 10%
4.8%
28.6%
146
117
Over 10%
3.0%
36.5%
195
168
Total/Avg.
100.0%
33.9%
$199
$158
Project
Cancellation
Project Overrun
Project overrun is the percentage of actual to budgeted cost or actual to budgeted time. Project
overruns may be expressed in actual time/cost versus plan. This KPI is important because anytime a
project goes over budget in either time or cost; it cuts directly into the PSOs profitability. Project
overruns, like projects not delivered on time, limit future work and client satisfaction. In many instances
project overruns indicate a lack of project governance, which negatively impacts bottom-line results.
Table 128 highlights how project overruns significantly impact billable utilization, on-time project
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Survey
Percent
Billable
Utilization
On-time
Completion
% of Work
Written Off
Voluntary
Attrition
Never
5.9%
74.2%
81.6%
1.7%
7.8%
0% - 5%
29.4%
72.8%
84.0%
1.8%
6.4%
5% - 10%
28.4%
68.9%
78.3%
2.7%
7.6%
10% - 20%
25.2%
68.3%
69.2%
4.1%
8.0%
20% - 30%
7.3%
69.6%
66.7%
3.7%
9.8%
Over 30%
3.9%
56.1%
53.4%
8.3%
12.1%
100.0%
69.8%
76.1%
3.0%
7.7%
Total/Average
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Survey
Percent
Billable
Utilization
On-time
Delivery
EBITDA
1 - Low
1.6%
57.1%
53.3%
15.7%
13.4%
67.5%
62.3%
15.9%
27.5%
68.2%
73.1%
16.3%
44.5%
72.7%
78.9%
18.8%
5 - High
12.9%
71.9%
81.0%
25.5%
Total/Average
100.0%
70.4%
74.9%
18.6%
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163
Survey
Percent
On-time
Completion
Revenue/
Consult.
(k)
Revenue/
Emp. (k)
1 - Poor
1.9%
54.3%
$132
$133
12.7%
63.2%
188
149
24.7%
73.1%
185
153
46.1%
76.8%
195
154
5 - Excellent
14.6%
84.8%
228
179
Total/Average
100.0%
74.9%
$195
$156
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Level 2
Piloted
Level 3
Deployed
Level 4
Institutionalized
Level 5
Optimized
5 to 20% margin.
PS becoming a
profit center but still
immature finance
and operating
processes.
Investment in ERP
and PSA to provide
financial visibility.
May not have realtime visibility or BI.
Standard Library of
Contracts and
Statements of Work.
20 to 30% margin. PS
operates as a tightly
managed P&L. Standard
methods for resource
mgmt., time & expense
mgmt., cost control &
billing. In depth
knowledge of all costs at
the employee, subcontractor & project level.
Processes in place for
contract management,
legal and pricing
decisions.
As shown in Table 136, in 2015 almost all financial metrics trended down. The only major area of
improvement was in larger project sizes, growing from an average of $189K per project in 2014 to
$225K in 2015. Financial metrics declined significantly in several important areas, particularly, revenue
per employee, which declined from $167K in 2014 to $157K in 2015. Given the scope of this
benchmark, (representing 350,000 PS employees) this decline represents as much as $3.5 billion in lost
revenue. Other KPIs which declined significantly include project margins for both time and materials
and fixed price contracts as well as subcontractor margins.
Falling leading indicators portend rough sledding in 2016. On top of the dramatic decline in sales
pipelines outlined in the CRM chapter, project backlog declined significantly from a relatively healthy
48.4% of quarter-starting forecast in 2014 to only 40.4% in 2015. This is the lowest level of backlog we
have seen since the great recession of 2009 when backlog declined to 41.9%.
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2011
2012
2013
2014
2015
$197
$206
$193
$197
$198
$167
$168
$155
$167
$157
$202
$170
$189
$189
$225
33.4%
35.9%
36.3%
36.3%
33.7%
33.5%
35.9%
37.6%
35.8%
33.0%
29.9%
29.7%
28.8%
28.4%
26.2%
45.1%
43.3%
45.0%
48.4%
40.4%
93.0%
91.2%
89.9%
90.5%
91.4%
89.6%
87.7%
88.2%
87.0%
89.4%
Revenue leakage
3.97%
4.04%
4.17%
4.05%
4.20%
2.0%
2.2%
2.1%
2.3%
2.6%
45.0
44.7
44.1
43.4
43.8
$1,613
$1,266
$1,392
$1,443
$1,908
2.68%
3.20%
3.00%
3.10%
3.00%
3.56
3.37
3.57
3.58
3.32
13.5%
16.8%
11.4%
13.2%
15.5%
Other sources of worry are shown in higher revenue leakage; more invoices that must be redone due
to client issues or inaccuracies; and higher amounts of discretionary non-billable expense per
employee. Yet with all this bad news, reported earnings before income tax and percentage
achievement of annual revenue and margin targets improved in 2015. This may mean the worst is yet
to come in 2016 as these metrics are reflections of 2015 performance, and do not predict 2016
performance. Now is a good time for all PSOs to take a careful look at their 2016 targets while
scrubbing backlog and sales pipelines to ensure they can be achieved. The global economy may be in
for rocky seas throughout 2016 so caution is advised.
The impact of effective planning and budgeting
An effective planning and budgeting process that enlists and enfranchises the collective intelligence and
vision of the firm is one of the most powerful tools in the executive handbook. The best performing
organizations have moved from reactive to proactive planning. Real-time visibility and analysis have
transformed decision-making from tactical to strategic. With the assistance of powerful planning and
analysis tools, planning does not have to be a dreaded once-a-year, laborious process. It can become a
fluid, collaborative, all-year-long process that facilitates input and cooperation across all functions and
levels. With the right tools, managers at all levels are empowered to analyze business performance,
conduct their own root cause analysis and take immediate action before it is too late.
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Unclear strategy lack of clarity around target markets, target clients and why we win. Inability
to capitalize on market opportunities due to lack of alignment, lack of employee engagement or
leadership and cultural issues. No leverage to drive repeat sales, limited competitive
differentiation, poor sales and marketing execution.
Lack of alignment unclear service charters particularly a problem for embedded service
organizations with conflict between driving revenue and margin versus helping the overall
company achieve its objectives of market expansion and client delight.
Silos exist in all companies they usually occur in the choppy waters between groups or
functions where responsibility and accountability are blurry. A classic example who is
responsible for driving new service revenues is it sales or delivery? How can disconnected
processes and poor handoffs be improved?
Reactive not proactive planning is seen as a necessary evil with finance-imposed tops down
targets combined with grudging business unit participation. The planning process itself is either
overly burdensome with endless rounds of manual spreadsheet inputs or chaotic and reactive.
Managers have no ability to analyze and recalibrate to take advantage of changing market
conditions leading to missed targets and a demoralized workforce.
Rearview mirror instead of focused on best growth alternatives because the planning process
is reactive and manual, business unit leaders and finance executives must rely on past business
performance rather than being able to spot trends and take advantage of them in real-time.
Business units are often working from stale data from disparate systems and tools.
Poor financial performance All of the above factors lack of strategic clarity, poor alignment,
silos, and of out-of-date information contribute to reactive, rearview mirror business forecasting
and planning. The net result is revenue and margin below targets, poor forecasting accuracy,
unpredictability and high levels of risk.
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Service Performance Insight has extended its industry-leading Professional Service Maturity Model to
focus on advancing maturity in planning and budgeting. The Planning and Budgeting Maturity Model
provides a view of the transformational power of shifting planning from reactive, heroic and painful to
become a core competence leading to renewal and growth (Table 137).
Table 137: Planning and Budgeting Maturity Model
People
Processes
Systems
Level 1
Level 2
Level 3
Level 4
Level 5
Ad Hoc,
Opportunistic,
Heroic and
Reactive
Piloted,
Experimental,
Pockets of
Excellence
Deployed, Basics in
Place for All Key
Elements
Institutionalized, in
the Company DNA /
Fabric
Visionary, Agile,
Innovative,
Continuous Renewal
and Improvement
Budgeting and
planning is
considered a
necessary evil. Tops
down, reactive,
siloed. Business
ignores targets, no
feedback processes
or ability to modify
based on changes.
Limited
commitment and
accountability.
Starting to align
corporate vision and
strategy to business
planning. Goals and
measurements in
alignment. Real-time
measurements and
controls. Business is
accountable for
planning, goal
setting and
achievement.
Budgeting and
planning becomes a
core competence
driving critical
business decisions,
goals and growth.
Collaborative,
business-driven.
Business is
committed to
planning and
achievement.
Budgeting and
planning is fully
automated & reflects &
capitalizes on
changing market
dynamics. Fluid,
flexible, collaborative
based on fact-based
decisions. Able to
spot trends in realtime. Business is
enfranchised.
Planning is a painful
nuisance. No
consistent budgeting
and planning
processes. Ad hoc,
reactive.
Planning is reactive
but tolerated. Starting
to align business
processes, systems,
measurements and
controls. Piloting
streamlined
processes. Pockets
of excellence
Planning process
has become core to
driving strategy,
alignment and
collaboration across
the business.
Optimized systems,
tools, processes.
Budgeting and
planning by
spreadsheet.
Manual, inconsistent,
error prone. Limited
investment in
systems and tools.
Reactive, rearview
mirror.
Starting to invest in
systems for major
processes ERP,
CRM and PSA.
Piloting CPM
applications. IT and
Finance-centric.
Fully integrated
information
infrastructure including
CPM applications for
budgeting, planning
and performance
management.
Business centric.
Global, integrated,
optimized information
infrastructure provides
high levels of
management visibility
and control. Able to
capitalize on emerging
trends. Optimized.
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Survey results
The following section reviews and analyzes 2016 PS Maturity benchmark results from 549 participating
professional services organizations. In this section SPI Research analyzes 39 finance and operations key
performance measurements that are critical to attaining superior financial performance.
Table 138 compares the finance and operations key performance indicators by the type of organization
and by region. This year, embedded service organizations reported substantially more revenue per
consultant and employee than independents. Independents delivered much larger projects but had
lower backlog. Employee productivity declined in 2015. Revenue per consultant increased slightly from
$197,000 to $198,000 while revenue per employee declined from $167,000 to $157,000 because firms
increased overhead and discretionary spending. Across the board, EMEA reported the most significant
decline in all major metrics, partially due to a decline in the euro and pound versus the US dollar.
Table 138: Finance and Operations KPIs by Organization Type and Geographic Region
Key Performance Indicator (KPI)
2014
2015
ESO
PSO
Americas
EMEA
APac
$197
$198
$217
$189
$217
$148
$200
$167
$157
$176
$148
$172
$114
$166
$189
$225
$182
$244
$230
$180
$333
36.3%
33.7%
35.3%
32.9%
35.8%
27.2%
37.0%
35.8%
33.0%
32.5%
33.3%
34.9%
27.6%
34.4%
28.4%
26.2%
28.6%
25.0%
27.5%
22.0%
28.4%
48.4%
40.4%
42.5%
39.4%
44.7%
31.9%
30.3%
90.5%
91.4%
92.1%
91.1%
92.1%
89.6%
91.8%
87.0%
89.4%
89.8%
89.3%
90.0%
87.6%
91.0%
Revenue leakage
4.05%
4.20%
4.80%
3.92%
4.34%
3.91%
3.86%
2.3%
2.6%
2.8%
2.4%
2.6%
2.4%
2.8%
43.4
43.8
43.8
43.9
45.5
40.3
40.2
$1,443
$1,908
$2,088
$1,826
$2,042
$1,590
$1,788
3.10%
3.00%
3.66%
2.69%
3.10%
2.70%
3.11%
3.58
3.32
3.30
3.33
3.33
3.31
3.26
15.5%
20.9%
13.6%
16.3%
11.9%
17.2%
13.2%
19.0%
10.8%
12.5%
15.5%
13.1%
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
$162
$186
$214
$199
$206
$199
$129
$146
$166
$161
$164
$164
$102
$113
$228
$279
$282
$315
29.6%
31.2%
35.8%
33.7%
34.3%
34.9%
31.0%
30.8%
35.7%
31.6%
34.3%
33.1%
21.2%
25.1%
28.4%
23.7%
25.2%
31.4%
29.3%
38.1%
43.5%
42.5%
39.0%
41.9%
91.0%
87.0%
91.2%
91.8%
92.8%
96.0%
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Over 700
90.6%
84.1%
88.1%
90.6%
91.5%
94.1%
Revenue leakage
3.34%
4.07%
4.30%
4.27%
4.20%
4.72%
1.7%
2.5%
2.1%
3.0%
3.1%
3.0%
34.1
41.4
44.7
46.9
44.5
46.9
$1,538
$1,250
$1,872
$2,033
$1,972
$2,875
2.18%
3.25%
2.76%
3.21%
3.04%
3.44%
3.68
3.44
3.33
3.15
3.31
3.17
14.3%
14.2%
14.2%
14.1%
11.7%
N/A
16.6%
14.6%
12.4%
10.6%
15.5%
11.9%
Table 140 shows financial results by vertical market. It Consulting, SaaS PS, Managed Services and
Hardware and Networking firms all reported profit improvements. Embedded software PS delivered the
highest revenue per employee and per consultant. Hardware PSOs and Management consultancies
delivered the largest projects with the strongest backlog. Architects and engineers reported the poorest
financial metrics with the lowest per person and consultant revenue yield, the smallest projects and the
lowest project margins. SaaS PSOs seem to have finally reversed the profit slide we saw in 2012 and
2013. SaaS organizations saw profit decline from 25.9% in 2012 to 4.3% in 2013; slight improvement
was shown in 2014 to 7.8% and now significant improvement in 2015 to 25.7%. This is an important KPI
to watch, as many organizations are turning to the cloud for their information infrastructure. The SaaS
PS profit swings are a direct result of shifting PS charters within cloud companies. As these firms rely on
annuity subscription revenue, the PS emphasis has shifted to customer adoption meaning many
embedded SaaS PSOs now deliver a lot of free consulting to ensure customers are really using the
software so they will renew their contracts and buy more seats.
Table 140: Finance and Operations KPIs by Vertical Service Market
Key Performance Indicator (KPI)
IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
$198
$226
$216
$142
$205
$198
$202
$153
$184
$178
$109
$170
$146
$165
$256
$183
$307
$135
$142
$151
$304
36.0%
37.3%
36.4%
19.8%
33.2%
29.2%
33.3%
35.6%
33.5%
36.9%
21.5%
30.4%
31.3%
35.5%
28.3%
28.7%
26.0%
14.4%
27.0%
19.1%
33.8%
43.5%
45.3%
33.8%
34.5%
40.2%
31.3%
45.4%
90.4%
93.5%
91.4%
91.6%
90.0%
89.2%
91.3%
88.8%
89.4%
92.7%
85.7%
90.6%
90.4%
90.0%
Revenue leakage
4.15%
4.89%
2.93%
4.76%
4.56%
3.68%
4.59%
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IT
Consult.
Software
Mgmt.
Consult.
Arch./
Engr.
SaaS
Mgd.
Serv.
Hard. &
Netwrk.
2.5%
2.7%
1.8%
2.9%
3.2%
3.8%
1.3%
42.5
49.0
40.6
49.4
39.5
34.6
35.0
$1,842
$2,474
$1,886
$1,826
$1,820
$1,417
$2,100
3.02%
4.15%
1.78%
3.73%
3.21%
2.83%
3.23%
3.39
3.30
3.66
3.02
3.46
3.27
2.42
13.3%
19.9%
12.2%
11.2%
25.7%
15.6%
32.3%
10.2%
20.5%
14.0%
12.3%
7.8%
N/A
24.5%
Advert.
(Marcom)
R&D
VAR
Staff.
Other PS
$188
$232
$150
$155
$153
$184
$155
$184
$136
$128
$97
$143
$537
$214
$93
$68
$150
$147
34.6%
36.1%
32.7%
32.2%
21.9%
28.2%
31.2%
31.1%
30.9%
39.0%
25.0%
26.8%
25.8%
35.4%
18.3%
27.2%
14.3%
23.5%
47.3%
39.2%
19.5%
42.2%
37.5%
34.5%
88.9%
92.1%
96.4%
91.5%
93.1%
93.2%
92.5%
89.6%
97.3%
81.5%
88.1%
88.0%
Revenue leakage
5.00%
5.93%
2.25%
2.55%
3.69%
3.65%
3.1%
3.1%
1.5%
1.5%
6.2%
2.2%
52.7
41.9
50.5
43.5
48.6
38.6
$1,625
$1,038
$2,023
$1,125
$1,969
$1,864
1.33%
3.04%
1.45%
2.90%
1.88%
1.35%
2.77
3.64
3.33
3.30
2.63
2.91
N/A
20.1%
20.9%
14.7%
3.4%
14.4%
N/A
N/A
N/A
1.7%
N/A
N/A
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Role
Management
Project
Management
Business
Consulting
Level
Total
% billable
work on
site
Target
Annual
Billable Hrs.
Published
Hourly
Bill rate
Realized
Hourly
Bill rate
Disc.
VP / Executive Management
2.7
17.9%
706
$271
$235
13.5%
Director
3.9
21.8%
785
242
213
11.8%
Manager
7.2
25.4%
879
202
176
12.9%
Program Manager
5.2
48.0%
1,368
200
174
12.8%
4.5
46.0%
1,472
202
177
12.4%
Project Manager
6.5
42.8%
1,505
190
164
14.1%
6.0
50.6%
1,450
232
196
15.6%
11.0
49.0%
1,519
189
169
10.8%
Business Consultant
13.8
47.9%
1,512
173
149
14.0%
9.5
46.9%
1,391
205
178
12.9%
15.2
53.6%
1,563
194
168
13.2%
Technical Consultant
19.1
47.7%
1,566
167
146
13.0%
Weighted Average
104.4
41.3%
1,363
$202
$175
13.1%
Solution Architect
Technical
Consulting
No. of
People in
the role
Based on SPIs 2015 PS Global Pricing report, bill rates reached their highest level in 2008 and then
subsided as the economy stalled and moved into a prolonged recession. Table 144 highlights bill rate
trends over the past seven years by role. It shows rates for the primary consulting job categories of
project management, business consulting and technical consulting have remained flat or have slightly
declined. Only senior manager and solution architect roles have experienced a moderate increase over
this seven-year period.
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Survey
Percent
On-time
Completion
Revenue/
Employee
(k)
Billable
Utilization
Under 20%
19.6%
69.0%
$122
70.1%
20% - 30%
21.9%
72.3%
150
70.0%
30% - 40%
27.7%
79.1%
164
70.0%
40% - 50%
17.2%
78.7%
182
72.8%
Over 50%
13.5%
80.3%
185
70.2%
100.0%
75.7%
$159
70.5%
Total/Average
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Survey
Percent
Annual
Revenue
Growth
Bid to Win
Ratio
Sales
Pipeline
Under 20%
24.3%
7.1%
4.81
143%
20% - 40%
25.7%
9.5%
4.85
179%
40% - 50%
15.9%
9.5%
4.79
157%
50% - 60%
11.5%
12.7%
4.99
170%
60% - 70%
8.7%
14.4%
5.03
200%
Over 70%
13.9%
14.6%
5.35
211%
100.0%
10.4%
4.93
172%
Total/Average
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Average
Project
Overrun
Backlog
% of
Invoices
redone
Under 2%
37.3%
6.7%
37.9%
1.5%
2% - 5%
36.9%
9.9%
40.0%
2.7%
5% - 10%
17.9%
13.3%
43.4%
3.4%
Revenue
Leakage
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achieved
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Independent service providers had values 16% lower than embedded services organizations ($1,538 vs.
$1,826). Organizations from the Americas had the highest ($2,042) quarterly non-billable expense per
employee, while those from EMEA had the lowest ($1,590). PSOs with over 700 employees had the
highest ($2,875) quarterly non-billable expense per employee, while those with between 10 and 30
employees had the lowest ($1,250). SPI Research found Software PS organizations showed the highest
quarterly non-billable expense per employee ($2,474), while marketing and communication firms
showed the least ($1,125).
These figures are still below pre-recession discretionary spending of more than $3,000 per employee.
Common causes of high non-billable discretionary spending are high business development and training
expenses or employee expense misuse. Unlike other metrics, non-billable expense per employee does
not appear to have a direct correlation with overall profit, utilization, reference clients or employee
satisfaction. In fact, very few key metrics appear to have been greatly impacted by non-billable
spending. By no means is this a recommendation for PSOs to increase discretionary expense, but
perhaps those that did so found other ways to improve profit and increase revenue.
Percentage of Billable Work Written-Off
Inaccurate invoicing, improperly accounting for time, project overruns and other project-related issues
force many PSOs to write-off billable work, which naturally hurts profits. The formula is simple. The
more work written off, the lower the firms profit. The differential is significant. Obviously, no firm
2016 Service Performance Insight
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Survey
Billable
On-time
EBITDA
Table 157 shows a clear
Work Written-Off
Percent
Utilization
Delivery
correlation between
None
14.4%
71.0%
77.1%
20.1%
increased levels of work being
Under 1%
22.8%
70.6%
77.5%
16.5%
written off and lower
1% - 3%
28.9%
71.5%
78.2%
15.3%
performance in terms of on3% - 5%
18.1%
70.8%
74.1%
14.9%
time delivery and other
5% - 10%
10.3%
68.3%
72.8%
14.3%
financial metrics. Billable
work written off does not
Over 10%
5.4%
66.6%
68.2%
6.6%
show up in utilization
Total/Average
100.0%
70.5%
76.0%
15.6%
percentages, but is directly
Source: Service Performance Insight, February 2016
related to essentially throwing
money away, which limits an organizations ability to grow and meet profit objectives.
Real-Time Visibility
Real-time information visibility is one of the most important management tools. SPI Research asked
survey respondents whether their executives had real-time visibility into all business activities (sales,
service, marketing, finance, etc.). The rewards are significant for organizations who have integrated
systems and management dashboards that allow them to pinpoint issues and spot trends in real-time.
Executives who have real-time visibility run companies that are much more profitable than those that
are not as they are able to take advantage of changing market conditions.
This years survey found executive real-time wide visibility was 7% lower (3.32 vs. 3.58) in 2015, when
compared to 2014, and 4% lower than the past five-year's survey average (3.44). Independent service
providers had values 11% higher than embedded services organizations (3.68 vs. 3.33). Organizations
from the Americas had the highest (3.33) executive real-time wide visibility, while those from APac had
the lowest (3.26).
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Survey
Percent
1 - None
Revenue
Growth
Bid-to-win
ratio
Revenue /
Billable
Employee (k)
Revenue /
Employee (k)
EBITDA
6.0%
4.7%
3.54
$165
$131
12.1%
2 - Minimal
16.6%
9.0%
4.74
178
143
13.0%
3 - Some
31.5%
10.5%
4.92
196
158
17.4%
4 - Substantial
31.3%
11.2%
5.02
212
165
14.2%
5 - Comprehensive
14.5%
12.6%
5.37
210
162
18.2%
100.0%
10.4%
4.90
$198
$157
15.5%
Total/Average
Extended real-time visibility is only attained through application integration. Extended means
information that flows across departments and functions, so that employees have a more complete
picture of operations, and can make quick, fact-based decisions. Without real-time visibility, decisionmaking can be subjective and reactive which hurts business performance. SPI Research believes these
results help organizations justify expenditures in IT to provide the systems and tools they need to
visualize, monitor and control the business.
Income Statements
In this section SPI Research analyzes income statements by organizational type and size. Inputs were:
Revenue
Direct gross PS revenue: Directly delivered PS revenue (not including re-billable travel)
Reimbursable travel and expense revenue: (includes re-billable travel and expense revenue)
Indirect gross revenue: (revenue from subcontractors, outside resources)
Pass-thru revenue: (revenue from hardware, software, materials, etc.)
Expense
Direct Labor expense: (does not include fringe benefits, vacation, sick time or overhead)
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Fringe benefit expense: as a percentage of direct labor (for healthcare, pensions, vacation and
sick pay)
Billable travel and business expense: business expenses that can be billed to clients
Non-billable travel and business expense: business expenses that cannot be billed to clients
Subcontractor/outside consultant expense: cost of subcontractors and outside consultants
Pass-thru expense: (expense for hardware, software, materials, etc.)
Recruiting expense: (includes recruiting headcount, fees and signing bonuses)
Sales expense: (includes sales headcount, bonus and non-reimbursable sales expense)
Marketing expense: (includes marketing headcount, bonus and marketing program expense)
Education, training and certification expense:
PS IT expense: supporting the IT infrastructure (personnel, applications, networking, etc.)
All other G and A: non-billable headcount, general and administration costs, facilities,
headcount and overhead
Profits rose in 2015 when compared to 2014, showing the strength of the Professional Services market
(Table 159). Both embedded and independent profit improved as did the profit reported by both the
Americas and APac. Unfortunately, profit declined in EMEA. Average profit for the entire benchmark
increased to 15.7% in 2015 as compared to 13.2% in 2014.
Table 159: Income Statement by Organization Type and Embedded Service Type
Key performance indicator (KPI)
Surveys
Survey
ESO
PSO
Americas
EMEA
APac
549
179
370
371
141
37
82.5%
79.7%
83.5%
83.9%
79.7%
75.0%
4.3%
4.6%
4.2%
3.5%
6.8%
5.2%
8.8%
10.0%
8.4%
8.8%
7.8%
11.8%
Pass-thru revenue
4.4%
5.8%
3.9%
3.7%
5.7%
7.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Direct Labor
41.1%
40.4%
41.3%
39.5%
46.4%
42.6%
Fringe benefit
6.3%
6.6%
6.1%
6.9%
5.0%
3.1%
3.2%
4.7%
2.7%
3.3%
3.1%
3.0%
1.9%
2.2%
1.9%
1.9%
2.4%
1.3%
7.8%
6.9%
8.2%
8.2%
6.1%
9.0%
Pass-thru Expense
2.4%
1.5%
2.7%
1.8%
3.6%
5.5%
Recruiting Expense
1.0%
1.0%
1.1%
1.0%
1.1%
0.8%
Sales
5.3%
5.1%
5.4%
5.6%
4.9%
4.3%
Marketing
2.0%
1.6%
2.2%
2.1%
1.7%
1.9%
1.4%
1.5%
1.4%
1.3%
2.0%
1.0%
REVENUE
Direct gross PS revenue
Total Revenue
EXPENSES
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ESO
PSO
Americas
EMEA
APac
PS IT
2.4%
2.0%
2.6%
2.5%
2.4%
2.0%
9.5%
5.8%
10.8%
9.6%
9.4%
8.2%
Total Expenses
84.3%
79.3%
86.4%
83.7%
88.1%
82.7%
2015 EBITDA
15.7%
20.7%
13.6%
16.3%
11.9%
17.3%
13.2%
19.0%
10.8%
12.5%
15.5%
13.1%
Profitability (EBITDA) rose for the second straight year in 2015 for the overall benchmark survey. EBITDA
was 17% higher (15.5% vs. 13.2%) in 2015, when compared to 2014, and 7% higher than the past fiveyear survey average (14.4%). Both embedded and independent professional services organizations
showed solid profitability growth with the independents showing the largest increase. In their income
statements, embedded service organizations typically do not pay for much of the infrastructure borne
by the independents, and therefore their profitability is typically higher.
On a regional basis both the Americas and the Asia-Pacific region showed strong profitability growth
from 2014 to 2015. However, Europe, the Middle East and Africa suffered a significant drop in
profitability. In 2014 EMEA reported the highest profitability and one year later it showed the lowest.
What hurt Europe the most was the high direct labor cost relative to the other regions.
As organizations grow in size, they typically report lower profitability. In 2015, different size
organizations with under 300 employees averaged virtually the same profit, at around 14%. SPI
Research did not have enough income statement data from firms with over 700 employees to feel
comfortable enough to publish.
Table 160: Income Statement by Organization Size
Key performance indicator (KPI)
Under 10
10 - 30
31 100
101 - 300
301 - 700
55
90
147
123
55
89.5%
84.9%
86.3%
80.0%
79.9%
4.2%
3.4%
2.9%
4.8%
3.9%
4.4%
8.3%
8.0%
9.0%
14.2%
Pass-thru revenue
1.8%
3.4%
2.7%
6.1%
2.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Direct Labor
46.3%
41.1%
45.1%
37.7%
45.2%
Fringe benefit
7.2%
6.8%
6.1%
6.8%
6.0%
3.9%
3.4%
2.9%
4.0%
2.8%
1.9%
2.2%
1.5%
1.5%
3.3%
6.6%
9.8%
6.7%
9.2%
9.1%
Surveys
REVENUE
Direct gross PS revenue
Total Revenue
EXPENSES
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Under 10
10 - 30
31 100
101 - 300
301 - 700
Pass-thru Expense
2.3%
2.3%
1.3%
4.5%
1.0%
Recruiting Expense
0.7%
0.8%
1.0%
0.7%
2.7%
Sales
3.7%
4.3%
6.6%
4.2%
4.1%
Marketing
2.0%
2.6%
2.0%
2.0%
1.3%
2.5%
2.2%
0.9%
0.8%
2.4%
PS IT
2.7%
2.5%
1.9%
2.8%
2.8%
5.9%
7.8%
9.9%
11.8%
7.5%
Total Expenses
85.7%
85.8%
85.9%
86.0%
88.2%
2015 EBITDA
14.3%
14.2%
14.1%
14.0%
11.8%
16.6%
14.6%
12.4%
10.6%
15.5%
In this years survey, SPI Research received excellent profitability metrics from most of the vertical
markets (Only markets with sufficient income statement data are shown). However, some, with fewer
than 10 employees, did not provide enough information to be statistically valid. For the organizations
with plenty of observations (Table 161) SPI Research found that both SaaS and softwares service
providers reported the highest profitability. This increase by SaaS providers was very important, as in
2014 their profitability was less than 10%. The two main independent groups, IT and management
consultancies showed solid profitability albeit less than the survey average. SPI Research found
Architecture and Engineering firms showed the poorest profitability (11.2%).
Table 161: Income Statement by PS Market Vertical
Key performance indicator (KPI)
Surveys
IT
Consulting
Software
Management
Consulting
Architects /
Engineers
SaaS
190
89
68
50
43
81.4%
80.4%
82.5%
87.2%
77.8%
4.1%
4.1%
6.1%
2.1%
11.5%
9.0%
10.6%
9.2%
8.6%
4.8%
Pass-thru revenue
5.5%
4.8%
2.2%
2.1%
5.9%
100.0%
100.0%
100.0%
100.0%
100.0%
Direct Labor
41.4%
38.8%
40.0%
44.2%
42.0%
Fringe benefit
5.7%
6.1%
5.9%
6.8%
8.7%
2.9%
5.7%
3.7%
2.1%
3.8%
1.6%
2.5%
1.8%
1.2%
1.6%
8.5%
7.4%
6.4%
11.0%
2.1%
REVENUE
Total Revenue
EXPENSES
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Software
Management
Consulting
Architects /
Engineers
SaaS
Pass-thru Expense
3.1%
0.8%
2.1%
3.1%
0.7%
Recruiting Expense
1.2%
1.2%
1.9%
0.1%
0.5%
Sales
7.0%
4.7%
5.0%
2.1%
5.4%
Marketing
2.3%
1.6%
2.2%
1.9%
1.7%
1.3%
1.8%
1.6%
1.8%
0.9%
PS IT
2.4%
2.7%
3.4%
2.4%
1.2%
9.3%
6.8%
13.8%
12.2%
5.6%
Total Expenses
86.7%
80.1%
87.8%
88.9%
74.2%
2015 EBITDA
13.3%
19.9%
12.2%
11.1%
25.8%
10.2%
20.5%
14.0%
12.3%
7.8%
Managed.
Services
VAR
Accounting
Advertising
(Marcom)
Staffing
17
14
13
12
99.2%
77.0%
78.4%
92.3%
100.0%
0.8%
3.9%
8.3%
0.7%
0.0%
0.0%
9.2%
9.1%
3.7%
0.0%
Pass-thru revenue
0.0%
9.9%
4.2%
3.4%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Direct Labor
72.1%
40.8%
52.0%
33.2%
49.2%
Fringe benefit
6.8%
6.9%
5.1%
5.8%
13.1%
0.5%
3.1%
0.3%
0.8%
0.0%
0.3%
1.9%
0.7%
1.8%
10.1%
0.0%
6.5%
4.0%
5.7%
2.4%
Pass-thru Expense
0.0%
3.0%
2.6%
2.2%
4.2%
Recruiting Expense
0.0%
0.8%
0.6%
0.6%
0.4%
Sales
2.1%
8.9%
0.4%
7.4%
6.6%
Marketing
1.9%
1.6%
1.1%
4.3%
3.4%
0.1%
1.6%
0.8%
1.3%
1.4%
REVENUE
Total Revenue
EXPENSES
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VAR
Accounting
Advertising
(Marcom)
Staffing
PS IT
0.1%
0.5%
8.8%
3.4%
1.0%
0.5%
4.4%
2.8%
18.9%
4.8%
Total Expenses
84.4%
80.0%
79.2%
85.4%
96.6%
2015 EBITDA
15.6%
20.0%
20.8%
14.6%
3.4%
N/A
N/A
N/A
N/A
N/A
SPI Research was impressed that profitability has increased for two years in a row. While still not at the
pre-recession levels, many of the core income statement KPIs did improve. As usual, embedded services
organizations showed high levels of profitability as they typically have a different cost structure then
independents as they do not pay the full burden for corporate sales, marketing, IT and G&A expense.
Although 2015 showed solid revenue growth combined with solid profitability, global economic
uncertainties and a massive stock market correction are powerful indicators of 2016 uncertainties.
Now is the time for PS executives to carefully revisit their 2016 business plans to ensure sales pipelines
are robust enough to support growth forecasts. A careful eye must be turned to scrubbing backlog and
reviewing overhead and discretionary spending. We could be in for a rough ride in 2016.
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Maturity Levels
Level 1 (Initiated
30% of the
respondents): In
Source: Service Performance Insight, February 2016
the initial stages,
the focus of the organization is primarily on client acquisition and building a reference base. In
order to accomplish this core mission, the organization must recruit and hire excellent staff.
Therefore, at Maturity Level 1 the priority focus areas are Customer Relationships and Human
Capital Management.
Level 2 (Piloted 25% of the respondents): The organization is becoming a profit center so
focus is still on client relationships but human capital and finance and operations have become
more important as the organization moves from a cost center to a profit center.
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Level 3 (Deployed 25% of the respondents): The organization has now deployed core
operating processes in all five service performance pillars. At this point, the organization must
continue to accentuate Human Capital Alignment but the key focus has shifted to Finance and
Operations and Service Execution. The organization must start to consider strategy and vision to
ensure the focus is on the right clients, markets and competition. At this level, the organization
must have deployed standard business processes across all dimensions.
Level 4 (Institutionalized 15% of the respondents): At this level, the organization must start
optimizing across all dimensions. However, maintaining and growing service revenue and
margin is of paramount importance. The organization must start developing a differentiated
approach to clients with vertical and horizontal market segments and geographies so a focus on
the Client Relationship pillar is critical.
While every organization should strive to attain Maturity Level 5 in each of the five service performance
pillars, some areas are more important than others depending on the overall maturity of the company
or its market. For instance, early in the life of a professional services organization client relationships
are far more important than profitability because without clients there can be no future. Over time,
client relationships always remain important, but the organization must equally focus efforts on other
Pillars. To be a truly optimized organization, the firm must aspire to reach Level 5 in all dimensions.
Model Improvements
Each year SPI Research makes modifications to improve the model based on additional surveys, its own
analysis, and feedback from PSOs that use the model. This year, there are several changes to the model
that should improve its accuracy and validity. These changes include:
Questions concerning bill rates were eliminated and put into the 2015 PS Global Pricing Study.
This change enabled SPI Research to reduce the survey length to 177 questions.
Value-added Resellers (VARs) and Managed Service providers were added as an increasing
number of VARs and hosting providers focus on professional services as a differentiator.
Hardware, software or other equipment resale was incorporated into the question on PS
revenue makeup to reflect how product sales have become increasingly important to
independent PS providers.
Service revenue was further delineated by new (logo) and existing clients and new versus
existing services to show how PSOs grow revenue.
Annual employee attrition was split into voluntary and involuntary to provide greater insight
into turnover.
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Recruiting costs were added to the income statement as recruiting costs are large and growing
as firms combat the war for talent.
Similar to every other year, not every question is included in the PS Maturity model. Demographic
information in particular is not part of the PS Maturity model but helps PS executives better compare
their organizations to the benchmark.
Model Inputs
SPI Research conducts correlation analysis between the questions to determine what, if any, impact
each of the key performance indicators (KPIs) have on each other. The questions were then rated by
relative importance from 0.0 (unimportant) to 1.0 (very important) for each of the KPIs. Each question
was assigned a maximum value based on the answer given and the weight of the question. At the
bottom of each of the following tables is the total maximum value possible in each maturity rating. Here
is a synopsis of the SPI Research methodology:
Factor: Respondents unique answers to the given question. Some questions are answered
within a range to reduce the time to complete the survey.
Weight: The relative value of the question as compared to others. Questions were weighted
from 0.0 to 1.0 depending on the overall importance of the question. Questions with a weight
of 1.0 are the most important in determining organizational maturity.
Pillar Correlation: SPI Research incorporates a correlation coefficient for each question to all
pillars, reflecting the inter-relationship that exists between different functions and key
performance metrics within PSOs. Correlations range from -1.0 to 1.0 depending on the KPIs
negative or positive impact on performance.
Maximum Score: The maximum score for each question is determined by multiplying the
normalized value of the question by its weight. Scores are normalized on a scale from 1 to 100
and then assigned a Maturity Level based on a score from 1 to 5.
The minimum scores for each Pillar are summarized in Table 163. The maximum value is 100, which
means the organization is at the Optimized level. By design, maturity scores are relative to the size of
the survey with approximately 5% of organizations designated at Level 5 (Optimized) in any given pillar.
Table 163: Minimum Normalized Performance Pillar Scores
Pillar
Level 1
Level 2
Level 3
Level 4
Level 5
Maximum
Leadership (LE)
0.0
47.3
56.1
62.9
71.1
100.0
0.0
36.2
43.1
50.8
58.9
100.0
0.0
47.1
53.7
60.0
66.1
100.0
0.0
36.1
43.7
50.7
58.0
100.0
0.0
24.7
31.8
41.5
57.3
100.0
Moreover, SPI Research assumes 15% perform at Level 4; 25% perform at Level 3; 25% perform at Level
2 and the other 30% perform at Level 1. These scores are slightly different from the 2015 report in most
2016 Service Performance Insight
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What might be
interesting to
readers of this
report is that
Source: Service Performance Insight, February 2016
when analyzing
the normalized
scores (1 to 100) in each Pillar it shows that no firm scores a 0, meaning the lowest level of
performance, nor does any firm score a 100, meaning the highest level. Figure 66 highlights the
scores for the Finance and Operations Pillar. Figure 66 shows that no firm scored over 75, meaning
there is always room for improvement, despite how well the organization runs!
Figure 67: Increase performance by focusing on low-performing KPIs
Consulting Rus
$150k - $200k
$150k - $200k
$50k - $100k
Under 20%
Under 20%
Under 20%
Over 70%
80% - 90%
Under 80%
Over 10%
3% - 5%
70 - 100 days
$2,500 - $5,000
5% - 10%
Substantial
Peer
Average
$193
$159
$220
35.8%
34.7%
26.6%
49.7%
92.8%
86.1%
3.29%
2.08%
40.7
$1,231
2.19%
3.58
Survey
Average
$197
$167
$189
36.3%
35.8%
28.4%
48.4%
90.5%
87.0%
4.05%
2.32%
43.4
$1,443
3.10%
3.58
Level 1
Level 2
Level 3
Level 4
Level 5
SPI Research works with services organizations to improve performance in each Pillar. The analysis
highlights how the firm scored relative to its peers (for example, management consultancies with
between 100 and 300 employees) and the overall survey. This graphical display highlights areas where
the organization performs poorly and where additional attention should be paid to produce
improvements. After over five-years of engagements using the Professional Services Maturity Model
2016 Service Performance Insight
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Model Results
SPI Research analyzed each of the 549 participating firms to minimize any bias when comparing PSOs of
different sizes. Table 164 shows the majority of organizations in each size category have similar
averages for each pillar.
Table 164: Average Service Maturity by PSO Size (People)
Average Maturity Level
Organization Size (people)
Count
LE
CR
HC
SE
FO
Under 10
55
2.33
2.07
2.42
2.18
2.00
10 30
90
2.23
2.14
2.23
2.18
2.14
31 100
147
2.45
2.61
2.46
2.63
2.59
101 300
123
2.38
2.37
2.39
2.37
2.49
301 700
55
2.40
2.36
2.44
2.42
2.36
Over 700
79
2.66
2.70
2.53
2.48
2.59
549
2.41
2.41
2.41
2.41
2.41
Total
As might be expected, this years model showed greater success among the larger firms, while those
with between 31 and 100 consultants also did very well in the two core areas of delivering services and
generating revenue and profit. Last year these firms were leaders in selling as well. Those firms with
under 30 showed the lowest performance on average, many are new firms without the structure,
standardization and breadth to enhance business systems and processes, a prerequisite for maturity.
Table 165: Average Service Maturity by PSO Type
Average Maturity Level
Organization Size (people)
Count
LE
CR
HC
SE
FO
Embedded
179
2.40
2.53
2.35
2.37
2.49
Independent
370
2.42
2.36
2.44
2.43
2.37
Total
549
2.41
2.41
2.41
2.41
2.41
SPI Research analyzed the maturity of PSOs by type (embedded vs. independent), and the results are
summarized in Table 165. This years results show that embedded service organizations scored better in
only two of the five performance pillars; in the past embedded organizations exhibited greater maturity
in all five dimensions. Embedded PSOs are typically early adopters of business applications as they
receive the benefit of sophisticated IT investments while independents tend to forego solution
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Count
LE
CR
HC
SE
FO
Accounting
13
1.85
1.85
1.92
2.00
2.15
Advertising (Marcom)
12
2.33
2.17
2.42
2.42
2.42
Architecture/Engineering
50
2.02
1.78
2.12
1.70
2.04
190
2.53
2.54
2.51
2.59
2.48
Managed Services/Hosting
17
2.35
2.00
2.35
2.12
2.00
Management Consulting
68
2.68
2.51
2.79
2.84
2.44
16
2.25
2.13
2.19
2.13
2.25
43
2.49
2.67
2.44
2.28
2.19
89
2.26
2.52
2.22
2.38
2.63
15
2.20
2.40
2.07
2.27
2.60
1.89
2.00
1.89
1.56
1.78
14
3.21
3.21
3.07
3.14
3.43
Other PS
13
2.31
1.92
2.23
2.00
2.00
549
2.41
2.41
2.41
2.41
2.41
IT Consulting
Staffing
Total / Average
The PS Maturity Model was developed to demonstrate the importance of organizational improvement
through the use of benchmarking. SPI Research believes that the importance of the maturity model is to
help organizations improve balanced performance across the entire organization, not just in terms of
financial performance. However, if the organization is profit-motivated (which most are), increasing
maturity levels do show up in significant bottom-line profit. Table 167 highlights some of the key
performance indicators by maturity level, and should alone be an important reason why PS executives
should looker deeper into using it to accelerate both productivity and profit.
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Level 1
Level 2
Level 3
Level 4
Level 5
4.5%
6.2%
12.2%
18.7%
24.9%
3.01
3.57
4.07
4.49
4.86
Confidence in PS leadership
3.03
3.79
4.22
4.54
4.83
4.07
4.43
5.55
5.73
6.41
122%
161%
186%
221%
254%
62.8%
70.0%
72.7%
78.0%
77.9%
64.3%
76.1%
79.6%
83.7%
88.8%
54.3%
62.4%
67.8%
74.0%
75.0%
$110
$184
$231
$244
$269
$91
$137
$185
$197
$215
Project margin
23.3%
31.0%
38.5%
41.4%
40.6%
81.3%
89.6%
94.4%
98.3%
100.7%
79.4%
86.4%
92.7%
96.7%
97.8%
0.7%
3.8%
8.5%
19.1%
36.0%
EBITDA (Profit) %
This table shows some of the benefits in moving up levels. Virtually every one of the 172 KPIs improve
as firms move up from one level to the next. Most organizations SPI Research has worked with find that
improving by one maturity level annually is about all they can do. While moving up even one level can
be difficult, the model shows the investment is well worth it.
The Inter-relationship of Pillars
Process improvement can both positively and negatively impact other Key Performance Indicators (KPIs)
in the same Service Performance Pillar as well as the other four. Some examples include:
Bid-to-Win (Client Relationships) impacts margins and revenue growth (Finance and Operations).
Winning bids might improve a PSOs sales effectiveness, but might worsen its Finance and
Operations pillar due to lower profit margins if heavy discounting is required to win the bids.
Leadership issues (communication, well understood vision, mission and strategy,) can impact
the ability to grow (Finance and Operations), staffing levels (Human Capital) and the ability to
effectively deliver projects (Service Execution).
If a project is delivered late (Service Execution) it can negatively impact relations with the client
and future sales effectiveness (Client Relationships), revenue growth and project profitability
(Finance and Operations).
SPI Research took these interrelationships into account when building the Professional Services Maturity
Model (Figure 68). It adds complexity to the model, but SPI Research believes it provides a real-world
balanced view that improves PSOs ability to positively enact change.
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Model Conclusions
In nine years of building the Professional Services Maturity Model SPI Research has seen the
correlation of KPIs vary from year-to-year, as the economy and competitive environment dictate how PS
organizations operate. The model is an aggregate built for PSOs (both embedded and independent),
different size organizations, as well as for the different vertical markets surveyed. Therefore, the results
will have some type of generic bias. PS executives who wish to have their organization compared
directly to their peer group (i.e., IT Consultants with 100 to 300 employees) should contact SPI Research.
As organizations grow in size, they will gain greater operational efficiency and other advantages, while
losing intimacy and ease of communication. Every vertical market has its own constraints, particularly in
pricing strategies, in many cases limiting the ability for high levels of profitability. The key to this
maturity model is for executives to hone in on their own vertical market, as well as organization size, to
better determine relative performance. Service Performance Insight can further segment this
information to help PS executives specifically analyze performance relative to their exact peer group.
Contact SPI Research for more information on the Professional Services Maturity Model.
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2015 started off strong but ended with increased global uncertainty. Some economic analysts are even
starting to use the dreaded R word (recession) to describe the 2016 economic climate. Growing
competition drove lower sales pipelines, fewer winning bid percentages and decreased backlog. These
sales factors, coupled with an increased level of employee attrition (both voluntary and involuntary),
caused ripples in market growth. Although there were reductions in many key financial metrics, there
was one notable exception, the one that matters most profitability, which actually rose to its highest
level in four years. What continues to be amazing in the professional services market is that revenue
growth is always higher than employee headcount growth, meaning professional services organizations
continually improve service delivery efficiency.
2016 is a new year, and regardless of the volatility shown in the first two months, the promise of ongoing prosperity in professional services remains high. In each of the PS markets, there is optimism in
the air:
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As top-line growth slows, embedded PS organizations within product companies are being ask to
produce more profit. Customer adoption and expansion are still top priorities but firms are
waking up to the potential of higher level services as a catalyst to drive customer value. Look for
the embedded PS organizations to offer an exciting array of unique customer insights and
accelerators. Service productizing and packaging are the key to unlocking more customer value
without wasting precious time and money. PS leaders are finally getting a seat at the executive
table. Many are assuming a new role of Chief Customer or Chief Service executive, charged
with leading and aligning support, PS and account management functions.
The world is changing, and architects and engineers look to show solid growth in the upcoming
decade as the call for new infrastructure and green technologies necessitate the need to
develop new facilities for both industrial production, retail and housing.
Digital marketing has become critical to the marketing and sales process, and advertising
agencies have made great shifts in the services offered to better pinpoint products and services
to their clients base. Marketing and communication firms, although still in love with glitzy ads,
are making their money from on-line advertising. Although creativity is still prized, these firms
are starting to run campaigns like projects with real metrics and measurements. This vertical is
rapidly adopting technology and PS business process maturity to wring greater productivity and
profit from talented social media wizards.
These are just a few of the changes SPI Research sees that will drive the market for professional services
in 2016.
Obviously, in the United States, the worlds largest economy, the presidential election looms, and could
impact the overall direction of the economy and the professional services market. Economic volatility,
increased deficits and reductions in government spending will no doubt continue. China is the wildcard
in the global market equation, as it fights its own issues with security, growth and government
intervention. And of course, oil, with the lowest prices in over a decade, impacts some markets
negatively, but at the same time allows consumers to put more money in their pockets from which to
spend. These issues hopefully will shake out over the next few months.
SPI Research projects moderate but consistent growth in the professional services sector in 2016. Our
clients are already reporting pipeline growth and labor shortages. Many firms are starting to revamp
their recruitment, hiring and retention plans. Undoubtedly, with time, the boom-bust-boom cycle will
sort itself out and the winners will be able to grow revenue and mature their business processes and
systems at the same time.
After nine years of development and enhancement, the Professional Services Maturity Model has
become a proven and trusted framework. Each year thousands of organizations use it to improve
organizational productivity and profitability. SPI Research works with a number of firms globally to
ensure their business transformation projects start-off on the right foot. Our fact-based analysis helps
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In the PS industry, constant change and improvement is a way of life. No firm can maintain the status
quo without anticipating and taking advantage of change. In this industry staying the same means falling
behind. Conditions and regulations change, so do client needs, technologies, and the workforce. PS
executives who embrace change can better prepare their organization for the future challenges and
opportunities that lie ahead.
SPI Research continues to advocate how PSOs should implement their performance improvement
initiatives:
1. Start with market positioning. Develop a winning strategy. A best practice is to annually revisit
the organizations market position, strengths, weaknesses and competitive threats. This
benchmark has proven time and again that a rising tide floats all boats. Firms that are wellpositioned in growth markets or are clearly the experts in their specialty area are always the
winners. Me too organizations who dont bring fresh new ideas and competencies quickly
become irrelevant. This people-based business has in infinite capacity for too much work but
becomes disenfranchised and complacent with not enough new and stimulating work.
2. Begin with Pillars that offer the greatest benefit: Establish quick wins and big wins. But not
too many of them. PSOs should give the greatest attention to those pillars (functions, processes
and systems) that can demonstrate the greatest value to the organization from improvement.
Determine the expected impact of improving each pillar by one level of maturity, and then
calculate the investment required, actions and owners to develop an action plan.
3. Develop teams to address Performance Pillars: Put someone in charge. Improvement priorities
are typically assigned on top of already over-worked managers. PS executives should seriously
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13. Appendicies
Meaning
Acronym
Meaning
APac
Asia-Pacific
PMI
BI
Business Intelligence
PMO
BPM
PMP
BPO
PPM
CEO
PS
Professional Services
CFO
PSA
CIO
PSO
CRM
ROI
Return on Investment
DSO
RSD
EMEA
SaaS
Software as a Service
ERP
SCM
ESO
SM
Social Media
EVM
SMAC
HCM
SRP
HR
Human Resources
SLA
ISV
SLM
IT
Information Technology
STEM
KPI
SVC
MarCom
VSOE
PA
Project Accounting
WBS
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The following table contains a list of standard key performance measurement terms and definitions
used in the benchmark report. The terms and definitions have been compiled from our knowledge and
experience and a variety of sources including www.wikipedia.org http://www.investopedia.com and
Morris, Manning and Martin, LLP. SPI Research is interested in expanding and evolving common key
performance measurements, standards and definitions for Professional Service organizations. If you
would like to add terms or suggest changes, your comments and suggestions will be appreciated.
Table 169: Standard Key Performance Indicator (KPI) Definitions
Term
Definition
70% utilization
Allocations
Corporate allocations refer to a companys policy of distributing the cost of shared resources, for example, facilities,
healthcare, IT and Sales, General and Administrative (SG&A) costs to specific functions or departments.
Annual Billable
Utilization %
Attrition %
Backlog
The ratio of successful bids (resulting in signed contracts) divided by the total number of bids or proposals issued. Bid Win
ratio is a good measure of sales and marketing effectiveness because it demonstrates the organization is pursuing
appropriate types of business and is able to beat its competitors.
Billings
Completed, accepted work that can been billed (T&M, Work in process, Milestone, Deliverables)
Bookings
Burdened Cost
Typically employee burdened costs are the costs per employee for benefits (Healthcare, Pensions, 401K) and an
apportioned cost for the employees facility and IT usage + all discretionary expense. The difference between burdened
cost and fully burdened cost is that fully burdened cost includes an allocation for corporate SG&A costs.
Capitalization
Expensed computing equipment: expenses (typically less than $100k) vs. capitalized (paid for over a time period).
Servers for example, are typically capitalized and depreciated over a 3 year period. Capital expenditures usually refer to
expenses a company makes for property, buildings or equipment. Capitalized items typically have a useful life of several
years.
Cash
The value of the most liquid assets within the balance sheet. Cash equivalents are assets such as money market accounts
that can be accessed quickly and are not subject to significant change. Does not include the value of accounts receivable.
Cash flow
Is the balance of the amounts of cash being received and paid by a business during a defined period of time, sometimes
tied to a specific project. The timing of cash flows into and out of projects is used as input to financial models such as
internal rate of return, and net present value.
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Definition
A measure of the average number of days that it takes a company to collect revenue after a sale has been made and a bill
has been issued. A low DSO means that it takes a company fewer days to collect its accounts receivable. A high DSO
means that a company is selling its product to slow-paying customers and it is taking longer to collect money.
Days sales outstanding is calculated as:
Days Sales
Outstanding
(DSO)
DSO is a key performance measurement of the credit-worthiness of a companys clients; a general indicator for client
satisfaction and the effectiveness of the billing and collection process. DSO is reported either quarterly or annually.
Depreciation
An expense recorded to allocate a tangible asset's cost over its useful life. Because depreciation is a non-cash expense, it
increases free cash flow while decreasing reported earnings.
Direct Costs
Cost incurred as a direct consequence of producing a good or service, as opposed to overhead or indirect costs.
Earnings Before Interest, Taxes, Depreciation and Amortization.
EBITDA
EITF
EBITDA is essentially net Income with interest, taxes, depreciation, and amortization added back to it. EBITDA can be used
to analyze and compare profitability between companies and industries because it eliminates the effects of financing and
accounting decisions. However, this is a non-GAAP measure that allows a greater amount of discretion as to what is (and is
not) included in the calculation. This also means that companies often change the items included in their
EBITDA calculation from one reporting period to the next.
An organization formed in 1984 by the Financial Accounting Standards Board (FASB) to provide assistance with timely
financial reporting. The EITF holds public meetings in order to identify and resolve accounting issues occurring in the
financial world. EITF 08-01 and EITF 09-03 are scheduled to go into effect in June, 2010. These new rulings provide
revenue recognition guidelines around the value of multi-element contracts which include products and services. These
new rulings will allow companies to more accurately recognize revenue as services are delivered for complex multi-element
contracts. They create a hierarchy of evidence to support revenue recognition including VSOE (Vendor Specific Objective
Evidence), TPE (Third Party Evidence) and ESP (Estimated Selling Price).
FASB
A seven-member independent board consisting of accounting professionals who establish and communicate standards of
financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting
principles (GAAP), govern the preparation of corporate financial reports and are recognized as authoritative by the
Securities and Exchange Commission.
Fixed Costs
Fixed costs are costs that remain the same regardless of changes in the business. For example, facility lease costs remain
the same for the life of the lease, regardless of the level of occupancy. If the business is expanding, the percentage of fixed
costs may decrease whereas if the business is contracting, the percentage of fixed costs may increase.
Fringe Benefits
A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are
met. Fringe benefits commonly include health insurance, group term life coverage, education reimbursement, childcare and
assistance reimbursement, cafeteria plans, employee discounts, personal use of a company owned vehicle and
other similar benefits.
Gross Margin
Gross Margin = (Total Services Revenue Expense or Cost to Deliver the Services)
The gross profit generated per dollar of services delivered.
A company's total sales revenue minus its cost of goods or services sold.
This dollar amount represents the gross amount of money the company generated over the cost of producing its goods or
services.
Gross Margin
Percentage
Gross Margin % = (Total Services Revenue Expense or Cost of Services Delivered) / Total Services Revenue
Gross Margin %= Gross Margin / Revenue
Gross Profit
Percentage
A company's total sales or service revenue minus cost of goods or services sold, divided by the total sales revenue,
expressed as a percentage. Gross profit and gross margin are used interchangeably.
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Definition
Income
Statement or
Profit and Loss
Statement
A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually
a fiscal quarter or year. The statement of profit and loss follows a general format that begins with an entry for revenue and
subtracts from revenue the costs of running the business, including cost of goods sold, operating expenses, tax expense
and interest expense. The bottom line is net income (profit).
Labor Burdened
Cost
Labor Multiplier
Lagging
Indicators
Labor multiplier = total $ amount of labor hours billed / fully loaded (burdened) labor cost
Note: a labor multiplier of 1.0 indicates a breakeven point.
Any usability cost-benefit analysis should value people's time based on their fully loaded cost and not simply on their takehome salary. The cost to a company of having a staff member work for an hour is not that person's hourly rate but also
includes the cost of benefits, bonuses, vacation time, facility costs (office space, heating and cleaning, computers etc.), and
the many other costs associated with having that person employed.
The simplest way to derive the average loaded cost of an employee is to add up all corporate or division expenses and
divide by the total number of productive hours worked.
Commonly, the fully loaded cost of an employee is at least twice his or her salary. This is why consultants charge so much
more than regular employees: their billable hours have to cover the many overhead costs that are implicit for full-time
employees. In fact, looking at common consulting rates for the kind of staff you are dealing with is a shortcut for estimating
the fully loaded value of your employees' time.
EXAMPLE:
base rate/hour (BR)=
OH multiplier (OHM) =
"loaded" rate/hour =
BR X OHM X PM
Base rate/hour=
overhead multiplier =
Profit multiplier =
"loaded" rate/hour =
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Definition
A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading
indicators are used to predict changes in the economy, but are not always accurate. In services, leading indicators are
backlog and sales pipeline because they are predictors of future revenue.
What Does the COMPOSITE INDEX OF LEADING INDICATORS Mean?
An index published monthly by the Conference Board used to predict the direction of the economy's movements in the
months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall
economy. These 10 components include:
Leading
Indicators
Loaded Cost
per Person
Base + Fringe Benefits (~25%) + Target Variable Compensation + % Corporate and Practice Overhead allocation per
person. Non-billable time (bench time) must be added to calculate the actual cost per hour of productive time.
Margin %
Markup %
Markup % = (Revenue-Cost)/Cost
For example, 60% markup = 40% margin
Measurement
Utilization %
Billable Hours + Approved non-billable hours (pre-sales, Customer Satisfaction, Special Projects)/(2080 hours or 260 days vacation and holidays)
Measurement
Utilization
Measurement Utilization = (Billable Hours + Approved non-billable hours)/ (2080 hours Vacations Holidays) Approved
non-billable hours are usually associated with presales, overtime not billed to clients, customer satisfaction resolution time,
internal projects or skills training.
Net Income
A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing
business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is
an important measure of how profitable the company is over a period of time. The measure is also used to calculate
earnings per share.
Often referred to as "the bottom line" since net income is listed at the bottom of the income statement.
Net income is calculated by starting with a company's total revenue. From this, the cost of sales, along with any other
expenses that the company incurred during the period, is removed to reach earnings before tax. Tax is deducted from this
amount to reach the net income number.
Non-billable
Travel
Non-billable travel expense represents travel expense which cannot be re-billed to a client. Typically consulting non-billable
travel is associated with business development or training activities.
On-Target
Earnings (OTE)
The typical pay structure for a salesperson is composed of a fairly low basic salary with an additional amount of
commission. The package will usually be called OTE or on-target earnings, meaning that if a salesperson hits the specified
target, they will be guaranteed that amount of money. A higher commission can be paid if the person performs beyond this
target.
Operating
Income
Operating income would not include items such as investments in other firms, taxes or interest. In addition, nonrecurring
items such as cash paid for a lawsuit settlement are often not included.
Operating income is required to calculate operating margin, which describes a company's operating efficiency.
Operating Income = Gross Income Operating Expenses Depreciation
Operating
Margin
Operating Profit
/ Margin
Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of
service delivery such as wages and benefits.
Operating Margin = Operating Income / Net Sales
Operating Profit = (Total Service Revenue Total cost of service delivery Total Operating Expense)/ Total Service
Revenue
The amount of profit realized from a business's own operations. A ratio used to measure a company's pricing strategy and
operating efficiency.
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Profit Margin =
Return on Sales
(ROS)
Definition
Usually, fixed costs - a business cost that is not directly accountable to a particular function or product; a fixed cost such as
facilities.
Costs incurred that cannot be attributed to the production of any particular unit of output.
The general, fixed cost of running a business such as rent, lighting, and heating expenses, which cannot be charged or
attributed to a specific product or part of the work operation.
The percentage of every dollar of sales that makes it to the bottom line. Profit Margin is Net Income after Tax divided by Net
Sales.
A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much
out of every dollar of sales a company actually keeps in earnings.
Project Margin
$
Revenue
Estimate
Revenue Estimate = Billable headcount X Billable hours X Average Bill rate X Average Utilization Rate
Revenue
Revenue per
person
Revenue = Billings that can be recognized within the time period + Re-billable travel and expense
The amount of money that a company actually bills during a specific period, including sales discounts.
Actual Bill Rate * Billable Hours + re-billable travel and expense
Recurring
Revenue
The best revenues are those that continue year in and year out, they are often referred to as recurring revenue.
Examples of recurring revenues are multi-year maintenance contracts and multi-year Software as Service (SaaS)
subscription revenues. Temporary revenue increases, such as those that might result from a short-term promotion, are less
valuable and garner a lower price-to-earnings multiple for a company.
Run Rate
How the financial performance of a company would look if you were to extrapolate current results out over a specified
period of time.
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Definition
http://www.mmmlaw.com/publications/article_detail.asp?articleid=103
(Selected excerpts from the article)
Any business generating revenue from licensing, selling, leasing or otherwise marketing software will experience serious
problems from failure to recognize the significance of the New SOP. This section summarizes the importance of revenue
recognition.
Revenue recognition is a fundamental component of generally accepted accounting principles (GAAP) and is a key
consideration in maintaining the integrity of financial statements. The central issue is one of timing and amount :
When should revenue generated in a software transaction be recognized in a software companys income statement, and in
what amounts?
In most cases, companies strive to recognize revenue as quickly as possible, thereby improving their financial performance.
Even private software companies generally try to improve financial performance by accelerating revenues whenever
possible. Before issuance of SOP 91-1 in December 1991, there was no specific guidance for recognizing revenue in
software transactions. The ensuing lack of uniformity among software companies in their revenue recognition policies led to
the inability of third parties to make meaningful comparisons among companies. Similarly, the New SOP is designed to
provide even greater uniformity by addressing inconsistent applications of SOP 91-1 in software transactions.
Revenue
Recognition
Basic Revenue Recognition Criteria. SOP 91-1 and the New SOP each define basic criteria that must be satisfied before
revenue can be recognized. Under the New SOP if an arrangement to deliver software does not require significant
production, modification, or customization of the software, then the New SOP specifies four criteria which must be met prior
to recognizing revenue from a single-element arrangement or for individual elements in a multiple-element
arrangement.1 These four criteria are:
1. persuasive evidence of an arrangement exists;
2. delivery has occurred;
3. the software vendors fee is fixed or determinable; and
4. Collectability is probable.
Although these basic revenue recognition criteria are substantially the same as those contained in SOP 91-1, the New SOP
takes a fundamentally different approach in certain areas such as: (1) providing detailed guidelines for recognition of
revenue in "multiple-element arrangements," and (2) eliminating the concept of remaining "significant vendor obligations"
under SOP 91-1.
Changing Sales Behavior. A software companys sales force will be critical to implementation of the New SOP. As a general
rule, software companies tend to bundle software and services together in order to offer a turn-key software solution to the
buyer. Additionally, the description of and the fees for the software and services being offered are typically combined. This
bundling makes the sale easier for a sales representative because it makes the offering easier for the buyer to understand
and it prevents the buyer from removing elements of the transaction that the buyer might not otherwise pay for if they knew
the individual price for the element. However, the result of this bundling could be a deferral of revenue recognition.
Therefore, many software companies will have to change the manner in which their sales personnel work in order to
achieve their revenue recognition goals.
Sales Force Compensation. From an internal perspective, many companies base compensation and bonus arrangements,
at least in part, on recognized revenue within a specified time period. If revenue recognition policies are changed, bonus
plans may be affected. With the adoption of the New SOP, benefit plans will require further examination to verify the
suitability of these plans in achieving a company's objectives and motivating employees to complete all the requirements for
revenue recognition as a basis for earning a bonus.
Subcontractor
Margin
Subcontractor Margin = (Total subcontractor generated revenue total subcontractor cost)/ Total subcontractor generated
revenue
Variable Costs
Variable costs are costs that vary based upon usage. Training, travel and business expenses are variable, whereas costs
for facilities are treated as a fixed cost because they do not vary based on use. Commonly variable costs may also be
termed discretionary because management can make decisions to make or not make the expenditure.
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VSOE
Definition
VSOE = Vendor-Specific Objective Evidence (accounting/contracting)
VSOE is the price established by management having relevant authority. Once a firm has established the VSOE price and
officially acknowledged it as such, that price must not be expected to change prior to the introduction of that element into
the marketplace. The introduction of that deliverable into the marketplace on a separate basis ought to be within a very
short period of time after the VSOE price is set. Accounting firms have differing opinions on how long is too long, so make
certain you are aware of your accounting firms guidelines.
Vendor Specific Objective Evidence (VSOE) is an agreed-upon value for goods and services. For service organizations,
VSOE is usually established by the companys auditors based on historical bill rates or actual realized revenues from
service packages. When VSOE service prices are set the effect can be very painful because the firms auditors review past
engagements to set current VSOE rates. This means if a firms services were significantly discounted in the past the
service organization will be penalized with Past sins when auditors calculate current VSOE rates. With software
companies the accepted practice is to amortize each sale across the contract's lifetime and to apply all labor hours whether
billable or not.
Source: Investopedia, Wikipedia, Morris, Manning and Martin, LLP, and Service Performance Insight, February 2016
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Service Performance Insight (SPI Research) is a global research, consulting and training organization dedicated to helping professional service
organizations (PSOs) make quantum improvements in productivity and profit. In 2007, SPI developed the PS Maturity Model as a strategic
planning and management framework. It is now the industry-leading performance improvement tool used by over 10,000 service and projectoriented organizations to chart their course to service excellence.
SPI provides a unique depth of operating experience combined with unsurpassed analytic capability. We not only diagnose areas for
improvement but also provide the business value of change. We then work collaboratively with our clients to create new management
processes to transform and ignite performance. Visit www.SPIresearch.com for more information on Service Performance Insight, LLC.
2016 Service Performance Insight
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